The stock market suffered its second-worst beating of the year after coming under pressure from a variety of sources — dismal economic reports, more trouble in Europe and an ominous warning from Goldman Sachs.
Major indexes lost nearly 2 percent apiece, with the Nasdaq tech gauge registering the biggest drop.
Major U.S. Indexes
All 10 sectors fell on the S&P 500, with energy — its exchange-traded fund proxy, the SPDR Energy
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It was the second time in three weeks the Dow dropped more than 250 points in a single session, with the bleeding contained only by gains from Merck
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Bad economic news kicked off the day and only got worse. That just exacerbated trader disappointment that the Federal Reserve, following its policy meeting Wednesday, had nothing more to offer the market than a continuation of its Operation Twist program of selling short-dated bonds and using the proceeds to buy longer-duration securities.
Some in the market expected more quantitative easing to help boost the flagging economy.
Caroline Purser | Getty Images |
"We're just not in a period of expansion now," said Andre Julian, CFO and senior market strategist at OWM Asset Management in Newport Beach, Calif. "A lot of people were looking for more from the Fed. A lot more was priced in. A lot of investors are expecting QE now."
On the Dow, Alcoa
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All seven of the major indexes in the Dow, S&P, Nasdaq and Russell closed below their 50-day moving averages.
The economy was the prevailing story of the session.
The Philadelphia Fed index, considered a strong barometer of demand, posted a weak reading of -16.6, indicating contraction.
Other measures were no better: Weekly jobless claims fell slightly but the four-week moving average rose to a 2012 high, while the Purchase Managers Index report from Markit said manufacturing grew at its slowest pace in 11 months as hiring slumped and demand waned. Finally, home sales fell in May though prices rose, casting doubts on a real estate rebound.
"The weak (Philadelphia Fed) reading is coincident with our belief that the economy has slowed in the spring and summer and we feel increasingly comfortable with our current outlook that suggests growth shouldn’t be all that much better as the year progresses," BTIG said in a note to clients.
Likewise, Goldman Sachs said the indicator bolstered the case that "the market will need to confront a deteriorating growth picture near term."
The firm recommends a short position in the Standard & Poor's 500, with a downside target of 1,285, representing a 5 percent drop from current levels. Traders said the Goldman market call helped drive a more aggressive move lower in the market, which had been treading water for the first hour or so of trading.
"Nowadays when Goldman talks people listen," Julian said. "Really all they're looking at is the last level of support. So it's not out of the question that it could hit that because it failed breaking through the last level of resistance."
Stocks closed lower in Europe as concerns mounted over soaring borrowing costs, particularly in Spain and other debt-laden European Union countries.
"Unfortunately we're seeing a further deterioration in the euro zone economy, which is weighing on the global economy," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "The market is probably just going to stay in a trading range until we get something out of the EU summit."
The market was awaiting a likely report from Moody's, which is expected to downgrade 15 global investment banks. The KBW Bank Index fell 1.7 percent in afternoon trading, though the news of a potential Moody's downgrade had been known since February.
The CBOE Volatility Index
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Across other markets, a rising U.S. dollar
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The fall in energy stocks ripped across the explorers space, including Hess
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Homebuilder stocks also took a beating off the bad housing news, with the iShares Dow Jones Home Construction
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Yields on government debt fell on safe haven demand, with the benchmark 10-year note dropping to 1.60 percent.
Market volume again was light, with fewer than 3 billion shares changing hands heading into the final hour. Breadth was sharply negative with decliners clobbering advancers 4 to 1.
In company news, Best Buy
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Bed, Bath and Beyond
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Chesapeake Energy
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In earnings news, ConAgra Foods
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Celgene
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TJX
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Overnight in Asia, the HSBC Flash Purchasing Managers Index, which tracks activity in the private sector, showed China's factory output contracted for an eighth straight month in June. Export orders and prices turned in their weakest showing since early 2009.
European equities
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Also in company news, Johnson & Johnson
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