US stocks closed at their lowest levels in a month yesterday in a sign of increasing doubt that equity markets can weather recent weakness in global manufacturing and demand.
Industrial, energy and technology stocks, closely related to growth, were among the day’s top decliners. Poor manufacturing figures from Germany and China were a surprise and gave investors reason to shed positions in those industries.
Mining machinery maker Caterpillar, a Dow component, lost 2.3 per cent to $101.89, while the S&P industrial sector index fell 1.4 per cent and the S&P info-technology sector index declined 1.5 per cent.
The drama surrounding the Eurozone’s debt crisis added to investor anxiety. It furthered a recent trend of selling commodities, the euro, and stocks in tandem.
The main driver of the market's decline is “a combination of global economic cooling and an increase in risk from Europe,” according to Paul Zemsky, head of asset allocation at ING in New York.
“Throw in the Greek downgrade on Friday, warnings about other countries being downgraded ... it’s just a negative cocktail right now.”
Negative ratings actions on Greece and Italy and regional election results in Spain raised concerns about the deepening of the Eurozone’s debt problems. Investors worry that voter rebellions against austerity plans could put some government debt at risk of default.
The euro hit a two-month low against the US currency.
The Dow Jones industrial average dropped 130.78 points, or 1.05 per cent, to 12,381.26. The Standard & Poor’s 500 lost 15.90 points, or 1.19 per cent, to 1,317.37. The Nasdaq Composite fell 44.42 points, or 1.58 per cent, to 2,758.90.
In a sign of technical weakness, the S&P 500 closed below its 50-day moving average for the first time since 19 April. It is also at its lowest level since that day.
Global stocks as measured by MSCI dropped 1.8 per cent, the biggest daily decline in more than two months.
The stronger dollar hurt commodity prices and stocks in the energy and basic materials sectors. Large exporters, which have benefited from a weaker US currency, were also hit hard. Shares of Coca-Cola fell 1.2 per cent to $67.49 and equipment manufacturer Joy Global dropped 3.1 percent to $87.54.
“A dollar rising is near-term negative for stocks while commodities [falling] can have both positive and negative aspects,” ING’s Zemsky said.