Another volatile day deepens stocks’ slide

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Posted: Monday, June 24, 2013 12:00 am

More signs of distress in China’s economy and rising bond yields led to a broad sell-off in stocks Monday, leaving the market down 5.7 percent from its all-time high last month.

It’s the first pullback of 5 percent or more since November.

U.S. trading Monday started with a slump, recovered much of its loss, then fell back toward steeper losses.

An overnight plunge in China caused by a spike in lending rates led to declines in Europe. China’s Shanghai Composite Index fell 5 percent, its biggest decline in four years. The drop was prompted by a government crackdown on off-balance sheet lending, which made investors worry about China’s economic growth. Then France’s benchmark stock index fell 1.7 percent, Germany’s 1.2 percent.

In the U.S., the Dow Jones industrial average fell as much as 248 points in the first hour of trading. The yield on the 10-year Treasury note spiked to its highest in almost two years as the sell-off brought down prices of U.S. government debt. Gold and other metals also fell.

Stocks got closer to break-even around midday before falling again in the last hour. The Dow finished down 139.84 points at 14,659.56. The S&P 500 index fell 19.34 points to 1,573.09. The Nasdaq dropped 36.49 points to 3,320.76.

Getting reliable information out of China is difficult, so it takes investors longer to decide how to react to developments there, said Gary Thayer, chief macro strategist for Wells Fargo Advisors.

The turbulence is also another a sign of how vulnerable financial markets remain to any comments from the Fed about its $85 billion in monthly bond purchases, which have kept interest rates at historic lows and helped drive the stock market’s rally the last four years. On Wednesday and Thursday, the S&P plunged 3.9 percent after the central bank said its bond-buying program could wrap up by the middle of next year as long as economic conditions continue to improve. Stocks edged up Friday but still had their worst week in two months.

“I think investors are overreacting to the prospects of a change in Fed policy,” Thayer said. He noted that unemployment is down, inflation is low. “These are good economic conditions.”

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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