U.S. Stocks Tumble Most Since 2002 on China Plunge, Orders Drop
By Eric Martin
Feb. 27 (Bloomberg) -- U.S. stocks tumbled the most since September 2002 as a plunge in Chinese shares sparked a global selloff and raised concern that investors will dump equities after a four-year bull market.
The declines, compounded by a slide in demand for U.S. business equipment, wiped out the year-to-date gains in the Dow Jones Industrial Average and Standard & Poor's 500 Index. The Nasdaq Composite Index also headed for its steepest drop since July 2002. Only two companies in the S&P 500 rose and every one of the Dow's 30 members retreated, led by Alcoa Inc. and Caterpillar Inc., companies that depend on demand from China.
Europe's Dow Jones Stoxx 600 Index slid 3 percent and emerging markets dropped. Russian shares fell from an all-time high, while Brazil's Bovespa Index sank 7.8 percent. U.S. Treasuries rose on increased demand for debt securities amid the worldwide equity slump and signs of a slowing economy after durable-goods orders fell more than forecast in January.
``Any force that works against global economic expansion is a negative,'' said Liam Dalton, who oversees $1.2 billion as chief executive officer of Axiom Capital Management in New York. ``The big straw on the camel's back is this China issue.''
The S&P 500 retreated 47.05, or 3.3 percent, to 1402.32 as of 3:15 p.m. in New York after earlier losing as much as 4.1 percent. The Dow average sank 409.93, or 3.3 percent, to 12,222.33. It earlier fell as much as 546.2 points, or 4.3 percent. The Nasdaq dropped 90.73, or 3.6 percent, to 2413.79.
Chinese Measures
China's government approved a special task force to clamp down on illegal share offerings and investments with borrowed money after indexes climbed to records. The Shanghai and Shenzhen 300 Index dropped 9.2 percent, wiping out $107.8 billion from a stock market that doubled in the past year.
``The Chinese market getting banged for 9 percent last night is only going to have a negative impact for markets across the world,'' said Michael Driscoll, a trader at Bear Stearns & Co. in New York. ``People in the U.S. have been anxiously awaiting a pullback. That may become self-fulfilling at some point.''
An indicator that measures the rate of expected stock-market swings rose the most since at least November 1991. The Chicago Board Options Exchange SPX Volatility Index, known as the VIX, surged 66 percent as investors anticipated more risk in owning stocks.
More than 67 stocks fell for every one that rose on the New York Stock Exchange. Some 1.86 billion shares changed hands on the Big Board, 77 percent more than the same time a week ago.
Alcoa
Alcoa, the world's biggest aluminum producer, tumbled $2.07 to $33.29. China is the leading consumer of the metal. Copper miner Freeport-McMoRan Copper & Gold Inc. fell $5.56 to $56.36 on expectations of decreased demand from China, also the biggest user of that metal.
A measure of raw-materials producers slumped 5.3 percent for the worst performance among 10 industry groups in the S&P 500.
Caterpillar, the biggest maker of earthmoving equipment, fell $3.50 to $63.76.
Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. extended their losses to a fifth day as a pullback in global equities threatens brokerages' earnings prospects, which are already hurt by an increase in mortgage defaults.
Lehman Brothers, the fourth-biggest U.S. securities firm by market value, dropped $4.30 to $73.53. No. 1 Goldman Sachs declined $14.25 to $199.75, while Morgan Stanley, the second largest, fell $3.89 to $74.63.
China's stock market drop is a concern because U.S. securities firms have become more reliant on growth in international markets, including Asia. At the same time, the weakening U.S. home loan market will reduce brokers' revenue from underwriting securities backed by mortgages.
Durable Goods Orders
The Commerce Department said orders placed with U.S. factories for durable goods slumped 7.8 percent following a 2.8 percent gain in December. Orders excluding transportation equipment slid 3.1 percent.
The figures suggest reluctance among companies to invest has carried into 2007. Bloated stockpiles at auto dealers and construction-equipment makers may restrain production early this year, Federal Reserve Chairman Ben S. Bernanke told Congress this month.
``With some potential signs of cracks, be it China or the durable goods orders, this might be setting us up for a cooling or a pullback in the market,'' said Jason Cooper, who helps manage $2.5 billion at 1st Source Investment Advisors in South Bend, Indiana. ``I'm much more bearish than bullish right now.''
Qualcomm, IBM
Qualcomm Inc., the world's second-biggest maker of chips that run mobile phones, lost $1.87 to $40.78. Chief Executive Officer Paul Jacobs last year said the company expects a ``huge market'' for advanced devices in China. International Business Machines Corp., which owns about an 11 percent stake in China's Lenovo Group Ltd., dropped $2.65 to $94.26.
NYSE Group Inc. slid $4.81 to $85.20. JPMorgan downgraded the owner of the world's largest stock exchange to ``underweight'' from ``neutral,'' citing an issuance of stock to Euronext NV shareholders. NYSE is preparing to complete the purchase of Euronext, which will create the first trans-Atlantic equity market. About 110 million new NYSE shares will be issued as part of the merger, JPMorgan said.
Advanced Micro, IBM
Advanced Micro Devices Inc. slid 66 cents to $15.02 and Intel Corp. declined 67 cents to $20.18. Sales of low-end server systems slowed markedly last quarter, the Wall Street Journal reported, citing two research firms.
Although the research differed on details and reasons, both showed a slowdown in sales of x86 servers, which take their name from the chip technology used by the companies, the WSJ said.
Apple Inc. fell $4.07 to $84.58. The company delayed the release of Apple TV and said the set-top box for displaying digital video on widescreen televisions won't be available until mid-March.
RadioShack Corp. rallied $2.59, or 12 percent, to $25.04 for the steepest gain in the S&P 500. The third-largest U.S. electronics retailer said fourth-quarter earnings jumped 65 percent after it closed stores and eliminated jobs. The company forecast a 2007 profit of $1 to $1.20 a share, more than the average analyst estimate of 90 cents in a Bloomberg survey.
Brocade Communications Systems Inc. surged 29 cents to $8.98. The largest maker of switches for data-storage networks said fiscal first-quarter profit excluding some items was 17 cents a share, topping the 13-cent average analyst estimate in a Bloomberg survey. The stock was raised to ``buy'' from ``neutral'' at Goldman, Sachs & Co. and to ``outperform'' from ``peer perform'' at Bear, Stearns & Co.
To contact the reporter on this story: Eric Martin in New York at
emartin21@bloomberg.net .
Last Updated: February 27, 2007 15:16 EST