Slowdown Fears Thrash Wall Street; Dow Dives 280
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Glum data revealing slowdowns in private-sector employment and manufacturing growth spooked traders, igniting the steepest selloff in nearly a year.
The Dow Jones Industrial Average tumbled 280 points, or 2.2%, to 12,290, the S&P 500 fell 30.7 points, or 2.3%, to 1,315 and the Nasdaq Composite slumped 66.1 points, or 2.3%, to 2,769. The FOX 50 was off 18.9 points, or 2%, to 920.
The weaker-than-expected reports added to market participants' fears that the economic recovery is entering a soft patch.
"The markets are pricing in a weaker economy looking forward," said Peter Kenny, managing director at Knight Capital Group. "Institutions are ... taking some chips off the table.
Every Dow component and major sector ended the day in the red. The Dow and S&P sustained the biggest percentage decline since August 2010 and the Nasdaq had its worst day since February. In a sign of the volatility, the VIX, often seen as a gauge of fear, soared 19%.
Private payrolls increased by 38,000 jobs in May, far shy of Wall Street's forecast of an increase of 175,000, according to payroll firm ADP. The number of private payrolls was the lowest since September 2010.
As a result, many analysts cut their expectations for gains in the highly-watched monthly non-farm payroll report from the Labor Department. The consensus estimate for payroll increases is now 175,000, down from 205,000 prior to the ADP report. The unemployment rate forecast remains unchanged at 9%.
The economic recovery "is sputtering a bit," said Josh Feinman, global chief economist at DB Advisors, Deutsche Bank's institutional asset management business.
Feinman notes there are several factors, such as high energy prices, that have presented a temporary roadblock to robust economic recovery. However, even as those factors ebb "we still have a long hill to climb" to get back to pre-recession economic growth, he said.
Large businesses and the goods-producing sector were the biggest drags, according to the report, while the service producing sector and small and medium businesses accounted for most of the gains.
The Institute for Supply Management's gauge of manufacturing activity fell to 53.5 in May from 60.4 in the prior month, less than estimates of 57.7. Readings above 50 point to expansion in the manufacturing sector, but the rate of expansion has slowed significantly, the data show. The new orders sub-index slumped to 51 for the month, from 61.67 the prior month.
"Pressures from rising commodity costs, plus supply-chain disruptions from Japan's natural disaster, and extreme weather domestically, have combined to slow manufacturing's momentum," wrote Nigel Gault, chief U.S. economist at IHS Global Insight, in a research note.
"This is particularly worrying since manufacturing has been the economy's shining star."
Several regional manufacturing reports from the Federal Reserve, and other private organizations, have disappointed markets in recent weeks. Manufacturers have had to deal with high energy prices and supply chain issues resulting from the earthquake and tsunami that slammed Japan in March.
Also on the economic front, the number of planned layoffs edged 1.8% higher to 37,135 in May, according to Challenger, Gray & Christmas.
The "big three" U.S. automakers reported monthly sales data on Wednesday. General Motors (NYSE:GM) said its sales fell 1.2% on a year-over-year basis in May as fleet sales tumbled 16%. Ford's (NYSE:F) sales ticked 0.1% lower from last year. Chrysler's sales jumped 10% for the same period on higher truck demand, and strength in its Jeep unit.
Energy markets followed equities deep into the red.
Light, sweet crude was off $2.41, or 2.4%, to $100.29 a barrel. Wholesale RBOB gasoline was down 7 cents, or 2.4%, to $2.97 a gallon.
A gallon of regular gas at the pump cost $3.78 on average nationwide, down from $3.81 last week, but still far higher than the $2.73 drivers paid last year.
Gold, generally considered a safe-haven asset in volatile times, was higher by $6.40, or 0.42%, to $1,543 a troy ounce. Silver fell 61 cents, or 1.6%, to $37.69 a troy ounce.
The euro was lower by 0.08% against the U.S. dollar, and the greenback drifted higher by 0.13% against a basket of world currencies.
Marathon Oil (NYSE:MRO) plans on buying oil and gas assets from Eagle Ford shale field for $3.5 billion from private equity firm KKR (NYSE:KKR) and Hilcorp Resources.
Schneider Electric unveiled plans to acquire Televent (NASDAQ:TLVT) for $40 a share, including Abengoa's 40% stake in the company. The deal is subject to approval by U.S. and European regulators, the companies said in a release.
The English FTSE 100 was down 1% to 5,928, the French CAC 40 fell 1.1% to 4,004 and the German DAX slid 1.1% to 7,217.
In Asia, the Japanese Nikkei 225 gained 0.27% to 9,720 and the Chinese Hang Seng dropped 0.24% to 23,626.