U.S. stocks joined a global selloff, sending the Standard & Poor's 500 Index to its first monthly drop since January, as Exxon Mobil Corp. (XOM) to Micron Technology Inc. (MU) tumbled amid weaker corporate results.
The S&P 500 slid 2%, the most since April, to 1,930.69. The Dow Jones Industrial Average fell 316.22 points, or 1.9%, to 16,564.14, erasing its gains for the year. The Nasdaq 100 Index lost 2%.
“The Fed is stepping out of the way and the market's valuation is high enough that people are quick to take profit,” Wayne Wilbanks, who oversees $2.5 billion as chief investment officer at Wilbanks, Smith & Thomas Asset Management in Norfolk, Va., said. “You are going to get more days like Thursday, where investors are more trigger happy, quicker to liquidate. Everybody knows a correction is coming and it will come.”
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The S&P 500 (SPX), which is up 4.6% this year and reached a record on July 24, has gone without a 10% correction since 2011. It trades at 17.6 times the reported earnings of its companies, near the highest level since 2010.
Exxon and Murphy Oil Corp. dropped Thursday amid concern over output. Micron slid after earnings from Samsung Electronics Co., the world's biggest smartphone maker, trailed estimates. Nike Inc. declined as its European rival Adidas AG slashed its full-year forecast. Sprint Corp. (S) tumbled, leading losses among phone stocks as France's Iliad SA offered to buy a stake in T-Mobile US Inc.
RISING VOLATILITY
The benchmark S&P 500 index lost 1.4% for the month. It had climbed 0.5% in July through Wednesday as companies from Facebook Inc. to Chipotle Mexican Grill Inc. reported a surge in profit, while Time Warner Inc. rallied as Rupert Murdoch's 21st Century Fox Inc. made a takeover offer.
Market volatility is rising after the S&P 500 ended its longest stretch of calm since 1995 this month. Including Thursday, the index has posted gains or losses of more than 1% three times in the past two weeks, compared with none during the 62 days through July 16, data compiled by Bloomberg show.
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The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, surged 27% Thursday to 16.92, the highest level since April 11.
Fifty S&P 500 companies report quarterly earnings Thursday. About 76% of those that have released results this season have topped analysts' estimates for profit, while 66% have exceeded sales projections.
Global equities fell Thursday amid weaker-than-projected earnings from Europe and Asia. The MSCI All-Country World Index tumbled 1.4% for its worst loss in almost six months. Deutsche Lufthansa SA and Adidas were among European companies sliding as they cited unrest between Russia and Ukraine for dimming growth prospects.
“Maybe the market is getting a little bit tired here,” David Chalupnik, the head of equities at Nuveen Asset Management, said. His firm runs about $120 billion. “It's more concern around Europe. We've had an extremely easy monetary environment for the past six years. When that changes, it's going to cause a lot of anxiety.”
FED DECISION
Concern also grew that the improving economy may force the Federal Reserve to raise interest rates sooner than expected.
Gross domestic product expanded at a 4% annual pace in the second quarter, confirming the central bank's view that a first-quarter contraction was transitory. Data Thursday showed fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years, signaling employers are hanging on to workers as demand improves.
“The Fed may have to change course sooner than expected if reports continue to show the economy is gaining some strength,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said.
The Fed Wednesday cut its monthly bond buying to $25 billion in its sixth consecutive $10 billion reduction. The Fed's Open Market Committee reiterated that it's likely to reduce bond buying in “further measured steps” and to keep interest rates low for a “considerable time” after ending purchases.
The central bank said slack in the labor market persists even though the economy is picking up. Employment data Friday may show companies added 231,000 jobs this month, according to the median economist estimate.
ARGENTINA DEFAULT
Investors also watched developments in Latin America. Argentina missed a deadline Wednesday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn't be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.
Standard & Poor's said Argentina is in default.
“When events like this happen, investors try to figure out whether this is an isolated occurrence or the first domino in a chain,” Lawrence Creatura, who helps oversee $350 billion as a fund manager at Pittsburgh-based Federated Investors Inc., said. “In the early moments there is always a bit of uncertainty as to which we have on our hands.”
