Analysts have expected a pullback for weeks, citing an overstretched market. Despite the day’s decline, the S&P 500 is still up almost 7 per cent for the year. If fourth-quarter gains are included, the benchmark index is still up almost 20 percent since 30 September.
Wall Street’s anxiety gauge, the CBOE Volatility Index or VIX, jumped about 16 per cent to near 21, rising above its 50-day moving average for the first time since November. About 10 stocks fell for every one that rose the New York Stock Exchange, with bank and miner shares among the top decliners.
Equities’ recent rally has continued without a substantial pullback since December, supported in part by expectations that Europe’s credit crisis would be contained and China’s economy could avoid a hard landing.
“It might be just the time we have a bit of pullback here as this market begins to reassess what the future growth prospects for the year look like,” said Burt White, managing director and chief investment officer at LPL Financial in Boston.
The Dow Jones industrial average slid 203.66 points, or 1.57 per cent, to 12,759.15 at the close. The Standard & Poor’s 500 Index dropped 20.97 points, or 1.54 per cent, to 1,343.36. The Nasdaq Composite Index fell 40.16 points, or 1.36 per cent, to 2,910.32.
Apple shares fell, but outperformed the broader market after volatile swings in recent days. The stock closed down 0.5 per cent at $530.26.
Europe’s downturn appeared ready to turn into a full-fledged recession due to a collapse in household spending, exports and manufacturing in the final months of 2011, the European Union said.
Brazil’s gross domestic product expanded by a meagre 2.7 per cent in 2011, data showed, adding to concerns after China cut its growth outlook earlier in the week.
The S&P financial sector index dropped 2.5 per cent and the KBW bank index fell 2.7 per cent. Morgan Stanley lost 5.3 per cent to $17.32.
Basic materials stocks also tumbled as commodity prices fell.
Aluminium producer Alcoa lost 4.1 per cent to $9.47 and Freeport-McMoRan Copper & Gold fell 2.5 per cent to $39.44.