U.S. stocks tumbled Wednesday morning, with the Dow Jones Industrial Average dropping almost 500 points, following a renewed selloff across stocks worldwide as skepticism about the strength of the global economy intensified.
Commodity shares remained at the forefront of the selloff, with energy companies sinking further into five-year lows and on pace for their worst monthly slump since 2008. Chevron Corp. slid 5.8 percent. International Business Machines Corp. fell 4.6 percent after its earnings forecast missed projections. Banks fell for a third day, with Citigroup Inc. and Bank of America Corp. down more than 5.1 percent.
The Standard & Poor’s 500 Index dropped 3.2 percent to 1,820.25 shortly after noon, the most in more than four months and on track for its lowest level since April 2014. The Dow lost 495.82 points, or 3.1 percent, to 15,520.20. The Nasdaq Composite Index and the Russell 2000 Index sank more than 3 percent.
“What the market is focused on is Chinese hard-landing fear, oil prices and the strength in the dollar,” said Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York. “We haven’t hit bottom yet. That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support.”
Global equities’ worst-ever start to a year is deepening as oil continues its collapse and a slowdown in China weighs on sentiment. Japanese shares joined benchmark indexes in China and Europe in tumbling into a bear market today. West Texas Intermediate crude futures slumped below $27 a barrel.
About $2.2 trillion has been wiped off the value of U.S. stocks this year through Tuesday, with the S&P 500 down 8 percent. And any rallies are getting shakier: nerves are weakening in a market where everything from China to oil and the Federal Reserve are proving capable of knocking equities down at any time. It’s a reversal of the optimism that underpinned the last three years of the bull market, when traders viewed bad news as transitory and used declines as opportunities to buy the dip.
The main U.S. equity benchmark was 14 percent below its all-time high set in May, after rallying to within 1 percent of the record as recently as Nov. 3. The S&P 500 trades at 14.9 times the forecast earnings of its members, in line with the index’s average of the past five years. It’s more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.6 times estimated earnings.
Investors are keeping close watch on progress in the economy to gauge the potential pace of future interest-rate increases by the Federal Reserve. The central bank’s next policy meeting concludes a week from today.
Data on Wednesday showed the cost of living in the U.S. dropped in December, led by a slump in commodities that’s roiling global markets. Excluding food and fuel, the so-called core index rose less than forecast with the smallest gain in four months. A separate report showed new-home construction unexpectedly fell in December, indicating the industry lost some momentum entering 2016. Permits, a proxy for future construction, also fell on a decline in applications for multifamily projects.
Concerns about weaker growth are overshadowing the corporate earnings season, where most of the few companies that have reported so far have exceeded estimates. Verizon Communications Inc., General Electric Co. and Starbucks Corp. are among S&P companies scheduled to release financial results this week. Analysts predict profits slumped 7 percent in the final three months of 2015, while sales fell 3.1 percent.
“A few people are calling this a good buying opportunity, but nobody seems willing to really stick their neck out,” said Ross Yarrow, director of U.S. equities at Robert W. Baird & Co. in London. “All the concerns go back to China and oil. We’re already seeing a big impact in the lack of trade across the world. There isn’t much out there that can really support a lasting rally.”
The Chicago Board Options Exchange Volatility Index jumped 12 percent to 29.27, heading toward its highest level since Sept. 1. The measure of market turbulence known as the VIX has surged 60 percent so far in 2016.
All ten of the S&P 500’s main groups fell Wednesday, losing at least 1.8 percent. Energy companies dropped 4.4 percent and raw-materials tumbled 3.2 percent to lead declines. Devon Energy Corp. and Murphy Oil Corp. were among the worst performers in energy, plunging more than 9 percent. Chevron headed toward its biggest in four years.
The declining value in energy shares has fueled speculation on whether Energy Transfer Equity LP’s agreement to buy Williams Companies Inc. for $38 billion would follow through. The doubts dragged Williams Cos. down 6.5 percent while Energy Transfer fell 6.8 percent.
Consumer discretionary companies, one of the few industries to finish with gains Tuesday, erased the advance today, falling 2.7 percent. Eighty-four of 86 companies in the group sank, with Wynn Resorts Ltd. dropping 10 percent, and Netflix Inc. declining 5.6 percent. That’s a reversal from the online video company’s post-market climb yesterday after reporting fourth- quarter subscriber gains that topped estimates.
Tiffany & Co. and Amazon.com Inc. slumped more than 4.1 percent as retailers in the benchmark were on pace to reach their worst level since April. Home Depot Inc. lost 3.9 percent, falling for the fourth time in five days.
The pain was widespread among technology companies, with Facebook Inc. and Yahoo! Inc. down more than 5 percent, while Apple Inc. lost 2.3 percent to track toward its lowest since August 2014.