U.S. stocks suffered their worst one-day drop since June on Friday, capping the worst week for benchmark indexes since 2012, as a selloff in developing-nation currencies spurred concern global markets will become more volatile.
The Standard & Poor’s 500 index retreated 2.1 percent, to 1,790.31, to close at its lowest level since Dec. 17. The benchmark index declined 2.6 percent this week. Trading in S&P 500 stocks was 52 percent above the 30-day average.
The Dow Jones industrial average slid 318.24 points, or 2 percent, to 15,879.11 on Friday. The 30-stock gauge lost 3.5 percent this week.
“The volatility of the emerging markets and the currency impacts are affecting U.S. markets,” said Eric Teal, who helps oversee $3.5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, N.C. “Following the strong gains of last year, I think it’s to be expected that you might have an overreaction here of selling.”
Emerging-market currencies had their worst selloff in five years Thursday as Argentine policy makers devalued the peso by reducing support in the foreign-exchange market. The Turkish lira plunged, Ukraine’s hryvnia sank to a four-year low and South Africa’s rand weakened beyond 11 per dollar for the first time since 2008. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.
Investors are losing confidence in some of the biggest developing nations, extending the rout in currencies that began last year when the Federal Reserve signaled it would slow the pace of its monthly purchases of Treasuries and mortgage bonds. The S&P 500 fell 0.9 percent Thursday and the Dow dropped to a one-month low after a gauge of manufacturing activity in China unexpectedly contracted.
The MSCI Emerging Markets Index lost 1.4 percent, extending its decline for the year to more than 5 percent, while Europe’s equity benchmark slid the most since June.
Three rounds of Fed monetary stimulus have helped the S&P 500 rise about 165 percent from a 12-year low in 2009. The U.S. equity benchmark rallied 30 percent to a record last year, the most since 1997. Equities have since pared gains, with the index down almost 3 percent for 2014.
“You’ve had a massive selloff in these emerging-market currencies,” Nick Xanders, a London-based equity strategist at BTIG Ltd., said by telephone. “Ruble, rupee, real, rand: they’ve all fallen and the main cause has been tapering. A lot of companies that have benefited from emerging-markets growth are now seeing it go the other way.”
The S&P 500 trades at about 15.4 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.
Ten companies in the S&P 500, including Procter & Gamble Co. and Bristol-Myers Squibb Co., reported results Friday. Of the 122 index members that have released earnings so far this season, 74 percent have beaten estimates for profit and 67 percent have exceeded sales projections, according to data compiled by Bloomberg.
Per-share profit for companies in the benchmark probably climbed 6.6 percent in the fourth quarter, while sales increased 2.6 percent, according to analysts surveyed by Bloomberg.