U.S. stocks retreated with sovereign debt from Europe to America, while a plunge in crude prices sent the dollar higher as investors calibrated expectations toward less global monetary stimulus.
The S&P 500 Index headed for the lowest close since July 7 as Monday’s rebound was overwhelmed by a selling in all 10 main industries. The CBOE Volatility Index surged 21 percent to the highest since June, while Apple Inc. was the only member of the Dow Jones Industrial Average to gain. Treasuries tumbled, sending the yield on the 10-year note to the highest since June. Crude dropped toward $45 a barrel on speculation a glut will persist. Mexico’s peso led declines among emerging currencies.
Equities have been whipsawed for three days after an unprecedented stretch of calm as investors remain on edge about central banks’ abilities to bolster the sluggish global economy. For the second time since Friday, stocks and bonds have sold off together, leaving investors few places to hide. Oil joined the rout after the International Energy Agency’s prediction that a glut will extend into next year, punishing currencies of resource exporters.
“The markets have become dominated by central banks, not just here in the U.S. but globally, that’s the dominating force across all asset classes,” said Bret Chesney, senior portfolio manager at Austin, Texas-based Alpine Partners. “When these central banks don’t move, people start to have fear that their stability factor -- which has been central bank policy -- may be diminished or gone.”
The selloff in stocks and bonds comes as fund managers increased cash levels this month amid bearish views on the markets, according to a Bank of America Corp. survey. The percentage of investors saying both equities and bonds are overvalued climbed to a record, while allocations to equities relative to cash fell to about the lowest in four years, the survey found.
The S&P 500 slid 1.3 percent at 1:28 p.m. in New York, paring a drop that reached 1.8 percent. The index rallied 1.5 percent Monday, rebounding from a 2.5 percent rout that shattered a stretch of tranquility that saw the index post no moves of more than 1 percent for 43 straight days.
Investors also continue to wrestle with extended valuations as companies in the S&P 500 are forecast to post a sixth consecutive quarterly profit decline. The index trades at 18.4 times estimated earnings, the highest since 2002.
The Stoxx Europe 600 Index slipped 1 percent after an early advance faded amid a rout in miners and energy producers. Total SA and Royal Dutch Shell Plc lost at least 2.6 percent, following crude lower. Commodity producers fell for a fourth day, their longest losing stretch since June.
The IEA-sparked rout in crude sent emerging markets lower for a third day, with stocks and currencies extending losses after the worst selloff since June. The MSCI Emerging Markets Index tumbled to the lowest since Aug. 4.
A rally in Asian stocks overnight faded, even after Monday’s strong U.S. rebound and as data showed China’s economy strengthened in July.
Treasuries due in a decade tumbled anew, reversing gains after the Brainard comments, and sending the yield to 1.72 percent, the highest since June 23. The probability of a Fed rate hike at next week’s meeting dropped by eight percentage points on Monday to 22 percent, futures prices indicated.
European bonds fell. The yield on German 10-year bonds rose three basis points to 0.07 percent, as the notes tumbled for a fourth straight day. Yields on similar-maturity French sovereign debt climbed four basis points to 0.37 percent.
U.K. gilts, which led the global debt-market selloff, reversed gains sparked by inflation data, sending yields higher by four basis points to 0.91 percent, the highest since July 1.
Investors will get a chance to bid on the longest-term U.S. debt in Tuesday’s 30-year auction. The securities yielded 2.38 percent in pre-auction trading, compared with 2.27 percent at a sale last month. So-called long bonds have fallen 3.4 percent in September, headed for their steepest monthly loss in more than a year, based on Bank of America Corp. data.