U.S. stocks sank Monday, tracking a global selloff in equities, as investors sought havens on concern that Russia's military presence in Ukraine could lead to a larger conflict.
General Electric Co. and 3M Co. each plunged 1.8% to pace declines among large industrial shares. Financial shares tumbled, as Visa Inc. and American Express Co. slid at least 1.9%. The Market Vectors Russia ETF, tracking companies from Gazprom OAO to OAO Lukoil, dropped 8.5%. Yandex NV, a U.S.-listed online search engine operating in Russia, slumped 14%. Newmont Mining Corp., the largest U.S. gold producer, jumped 2.7%.
The S&P 500 dropped 1.1%, the most in a month, to 1,829.06 at midday in New York. The gauge closed at a record on Feb. 28. The Dow Jones Industrial Average dropped 203.22 points, or 1.3%, to 16,118.49. Trading in S&P 500 stocks was 4.1% below the 30-day average at this time of day.
“Global markets typically sell off on news of an escalated geopolitical crisis like we're seeing in Ukraine; how deep it goes depends on the effectiveness of diplomacy,” said Frederic Dickson, chief investment strategist who helps oversee $44.5 billion at D.A. Davidson & Co. “We're in a camp that this is not a black swan event that will mark the end of the five-year bull market for stocks in the U.S. and globally, but a modest correction event.”
The tensions sent stocks tumbling around the world, with the MSCI All-Country World Index sliding 1.4%. Russian stocks had their biggest decline in five years and the Europe Stoxx 600 plunged 2.3%, its biggest slide in five weeks. Emerging-market stocks dropped 1.7%. Gold soared 2.4% and Treasuries rallied.
Ukraine warned that Vladimir Putin's military is strengthening its presence in Crimea amid the worst standoff between the West and Russia since the Cold War ended.
Russian servicemen confronted Ukrainian army units in the Black Sea district in the last 24 hours, while fighter jets violated airspace and more warships arrived, border guards and the Defense Ministry said Monday. U.S. Secretary of State John Kerry is traveling to Kiev after discussing sanctions against Russia. European Union foreign ministers will meet in Brussels.
“The Ukraine news is troubling, but there are always global risks and short-term fluctuations because of these risks,” said Karyn Cavanaugh, a market strategist at ING U.S. Investment Management. Her firm oversees about $200 billion. “I see this being short-term unless it escalates. If we do see some market gyrations and volatility, it could be a buying opportunity.”
The geopolitical tension comes after the S&P 500 rose 4.3% in February, the most since October, to end the month at a record 1,859.45. Investors have been speculating that recent weakness in data from housing to jobs was caused by inclement weather and that the Federal Reserve will continue to support the economy.
U.S. equities are set to enter the sixth year of a bull market that started March 9, 2009. Three rounds of stimulus have helped push the S&P 500 up 175% from a 12-year low.
Investor concerns on emerging markets sent the S&P 500 plunging 5.8% from Jan. 15 to Feb 3, amid signs that growth was slowing in China and a rout of emerging-market currencies as the Fed began to reduce stimulus. Reports today showed two gauges of Chinese manufacturing in February signaled slower growth.
Data in the U.S. Monday showed manufacturing expanded at a faster pace than projected in February, a sign the industry was beginning to overcome bad weather across much of the country. The Institute for Supply Management's manufacturing index rose to 53.2 in February from 51.3 a month earlier. Readings above 50 signal expansion.
A separate report indicated consumer spending rose 0.4% in January after a 0.1% gain the prior month. The median forecast of 76 economists in a Bloomberg survey called for a 0.1% rise. Incomes advanced 0.3%.
“There are other worries already built into this market,” said Todd Salamone, director of research at Schaeffer's Investment Research. “Whether it's China or the U.S. slowing down or the Fed, we have had a market that has marched higher amid a lot of scary headlines. The good news for the bulls is that there's a lot of fear already built into this market as is.”
The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, jumped 15% to 16.15 Monday, its biggest advance since Feb. 3. Options tied to gains in the VIX reached the highest prices in six years last week, reflecting bets that the calm prevailing in equities for the last year won't last.
A series of calls that appreciate in tandem with the VIX climbed to the highest level since May 2007 relative to puts last week, according to data compiled by Bloomberg.
“It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings,” Warren E. Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said in his annual letter to investors last week.
All 10 main groups in the S&P 500 retreated at least 0.4% Monday. Industrial shares slid 1.1% as a group. General Electric lost 1.8% to $25.02 and 3M dropped 1.8% to $132.36.
Banks and other financial firms tumbled 1.1%. American Express sank 1.9% to $89.57 while Visa had the steepest slide in the Dow, dropping 2.1% to $221.21.
Yandex, whose market share in Russia is twice that of Google Inc.'s, plunged 14% to $32.17. The shares have lost 25% this year, compared with a gain of 1.6% for a gauge of technology stocks listed on the S&P 500. The Russian ETF dropped 8.5% to $22.37.
Ford Motor Co. slid 2.1% to $15.06 after the carmaker said February light-vehicle sales fell 6.1%. Analysts had estimated a drop of 5.3%. A group of automaker and supplier shares fell 1.5%, the most among 24 S&P 500 industries.
Newmont Mining rallied 2.7% to $23.89 after gold jumped to a four-month high in New York as investors bought the metal as a haven.