US stocks posted the worst day in three weeks yesterday on mounting evidence that slowing manufacturing growth worldwide threatened corporate profits.
Shares of energy and materials companies led declines as commodity prices fell. US crude futures slipped below $80 a barrel for the first time since October and the S&P energy sector index lost 4 per cent. Investors said weak overseas demand was responsible for the decline in those industries.
Stocks’ slide was accelerated by a bearish call from Goldman Sachs, which recommended clients build short positions in the broad S&P 500 index on expectations of more economic weakness.
“We are recommending a short position in the S&P 500 index with a target of 1,285,” (roughly five per cent below current levels), Goldman Sachs said in a note.
Semiconductor stocks weighed on the Nasdaq after chipmaker Micron Technology posted a net loss for the fourth straight quarter. Micron lost 7.8 per cent to $5.65 and the PHLX semiconductor index dropped 4.1 per cent.
Stocks had enjoyed a two-week run that brought the S&P up more than seven per cent on hopes for additional stimulus from the Federal Reserve.
Business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed growth by US factories.
The KBW Bank Index fell 2.3 per cent amid expectations Moody’s Investors Service would announce downgrades in the banking industry.
The Dow Jones industrial average was down 251.35 points, or 1.96 per cent, at 12,573.04. The Standard & Poor’s 500 Index was down 30.19 points, or 2.23 per cent, at 1,325.50. The Nasdaq Composite Index was down 71.36 points, or 2.44 per cent, at 2,859.09.
The day’s decline was the worst since 1 June when the S&P 500 fell 2.5 per cent.
Celgene slumped 11.5 per cent to $59.45 after the company said it was withdrawing a European application for wider use of its big-selling Revlimid blood cancer drug.
Philip Morris International lost 3.3 per cent to $85.62 after forecasting full-year earnings below Wall Street estimates, saying a strong dollar has hurt sales abroad.
After the bell, Moody’s Investors Service cut the credit ratings of 15 of the world’s biggest banks in a highly anticipated move that was part of a broad review of major financial institutions.
Shares of JPMorgan added 1.4 per cent to $36.00 and Morgan Stanley added 3.2 per cent to $14.41 in extended trade, after both were among the banks downgraded.
Softening data globally lifted hopes of central bank action to support the economy.