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Stocks Tumble In Biggest One-Day Drop In Five Months

Photo by John Moore/Getty Images

For stock investors, the red flags were everywhere on Thursday.

There were weak corporate results, the looming end of stimulus from the Federal Reserve and tensions between the West and Russia. On top of that, some investors feared that stocks have become too pricey after three years without a significant downturn.

The confluence of worries sent the Dow Jones industrial average tumbling more than 300 points, its worst one-day drop since February. The plunge snapped a string of five straight monthly gains, and pushed the blue-chip index to a slight loss for the year.

But it wasn’t just stocks that suffered. Oil fell to its lowest level since March, gold dropped and even Treasurys edged lower.

The stock market fell in early trading after a dose of bad earnings news, and the losses accelerated throughout the day. Whole Foods Market and Exxon Mobil sparked the selling after their quarterly results late Wednesday disappointed investors. Yum Brands, the owner of KFC and Pizza Hut, slumped after it said that its earnings would be crimped by a food safety scandal in China that involved repacked meat.

Also driving the downturn were concerns that the Fed could raise short-term interests faster than expected because of a rebound in U.S. growth during the spring.

The stock market has climbed nearly 200 percent since March 2009, with the most recent leg of that surge pushing the Standard & Poor’s 500 index to an all-time high a week ago. The S&P 500 hasn’t suffered a sell-off severe enough to qualify as a correction, Wall Street parlance for a fall of 10 percent or more from a peak, since October 2011.

“We’ve been on a strong run,” said Jerry Braakman, chief investment officer at First American Trust. “There’s just more concern that stock valuations are rich compared to historical norms.”

The S&P 500 dropped 39.40 points, or 2 percent, to 1,930.67, its biggest loss since April 10. The drop pushed the index to its first monthly loss since January.

The Dow Jones industrial average plunged 317.06 points, or 1.9 percent, to 16,563.30. The drop was the biggest since Feb. 3 and the index is now 13.36 points lower for the year. The Nasdaq composite fell 93.13 points, or 2.1 percent, to 4,369.77.

Exxon Mobil stock fell $4.31, or 4.2 percent, to $98.94 after the energy company said that oil and gas production slipped 6 percent in the second quarter, disappointing analysts. The decline was driven by the expiration of rights to a field in Abu Dhabi and natural field declines. Whole Foods Market fell 88 cents, or 2.3 percent, to $38.23 after reporting quarterly sales that fell shy of expectations. The upscale grocer also lowered its sales forecast for the year.

Stock market valuations have climbed steadily for almost three years. Investors have become more optimistic about the outlook for earnings as economic growth has improved. The price-earnings ratio for S&P 500 stocks rose as high 15.9 earlier this month from 10.5 in September 2011.

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