The latest evidence of a slowdown came in the Federal Reserve’s Beige Book, which gives an anecdotal report on the economy. It reinforced Fed chief Ben Bernanke’s bearish assessment on growth delivered late on Tuesday.
The market’s mood soured when Bernanke gave no hint that the central bank would offer a third round of stimulus to an economy losing steam. The Beige Book said costlier food and energy prices as well as supply disruptions stemming from Japan’s earthquake were taking a toll.
The S&P 500 was down about six per cent from its 2011 intraday high hit on 2 May, but was still up 1.7 per cent for the year. Stocks have come under pressure recently due to a slew of weak economic data, especially in the labour market.
“Investors are re-pricing the slowdown after Bernanke crystallised it,” said Jason L Ware, senior equity research and trading analyst at Albion Financial Group in Salt Lake City, Utah.
On top of that, “the market was hoping for an indication that there may be another round of stimulus but clearly, that’s not what they got.”
The Fed’s $600bn (£366bn) second round of stimulus, expected to end this month, has been a catalyst for the stock market’s advance.
Many of the day’s biggest decliners were US-traded Chinese companies after Interactive Brokers Group banned clients from borrowing money to buy some Chinese stocks.
New York-listed shares of Renren fell 13.6 per cent to $10.51 and Baidu lost 3.3 per cent to $120.67.
Mortgage insurers’ shares also fell after MGIC Investment reported disappointing monthly operating statistics.
Shares of MGIC Investment, the biggest mortgage insurer to Fannie Mae and Freddie Mac, fell 20.2 per cent to $5.80.
The Dow Jones industrial average dropped 21.87 points, or 0.18 per cent, to 12,048.94. The Standard & Poor’s 500 Index lost 5.38 points, or 0.42 per cent, to 1,279.56. The Nasdaq Composite Index fell 26.18 points, or 0.97 per cent, to 2,675.38.
“I think 1,250 is a key level (on the S&P) and, if we get there, likely to provide support for the market, barring any further erosion in the underlying economic data,” Ware said.