Benchmarks slumped on Monday following a sell-off in Chinese equity markets coupled with investor concerns about the Fed trimming its bond buying program in the future. Chinese stocks took a battering on Monday and logged their biggest sell-off in more than four years. The market opened sharply lower on Monday but recovered some of its losses in the afternoon. Benchmarks finished in the red for the third time in the last four trading session. All ten sectors of the S&P 500 industry groups ended in the negative territory. The financial sector was the biggest loser.
The Dow Jones Industrial Average (DJI) declined 0.9% to close the day at 14,659.56. The S&P 500 lost 1.2% to finish yesterday’s trading session at 1,573.09. The tech-laden Nasdaq Composite Index fell 1.1% to end at 3,320.76. The fear-gauge CBOE Volatility Index (VIX) jumped 6.4% to settle at 20.11. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 8.33 billion shares, considerably higher than the 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 80% that declined, only 18% advanced.
The market began yesterday’s trading session in a bearish mood. The Dow Jones lost as much as 248 points in the opening hour of the trading but recovered some of its losses in the afternoon. Investor sentiment plunged in the previous week after Federal Reserve’s Chairman Ben Bernanke hinted that monetary stimulus would be decreased by the end of the year. A huge sell-off in Chinese equity markets further dampened investor sentiment. The Shanghai Composite plunged 5% and logged its worst one-day fall in more than four years.
Chinese financial stocks plunged more than 7% after the People's Bank of China urged banks to institute measures to optimize their handling of cash and lending. Investor fears that the health of the economic will be hampered if central bank tightened the supply of money. The Chinese central bank again said that there is a “reasonable” amount of liquidity in the country’s financial system. The People’s Bank of China had earlier said: “At present, the overall liquidity in China’s banking system is at a reasonable level, but due to many changing factors in the financial markets and also because of the mid-year point, the requirements for commercial banks in liquidity management have become higher.”
On Monday, two Fed officials moderated investor fears of an approaching end to the bond buying program. Minneapolis Federal Reserve President Narayana Kocherlakota said: “I was concerned about the strong reaction...to the committee's communication. I thought there was a sense out there...that the committee had taken more of a hawkish turn, in terms of thinking about policy... I thought that was a mis-perception that should be clarified.”
The financial sector was the biggest loser among the S&P 500 industry groups. The Financial Select Sector SPDR (XLF) declined nearly 1.8%. Stocks such as JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS), PNC Financial Services (NYSE:PNC) and U.S. Bancorp (NYSE:USB) fell 2.0%, 3.1%, 2.3%, 1.7% and 0.5%, respectively.
The materials sector also had a bad run yesterday. The sector took a beating for the second consecutive day. The Materials Select Sector SPDR (XLB) lost nearly 1.6%. Stocks such as Alcoa Inc (NYSE:AA), The Dow Chemical Company (NYSE:DOW), E I Du Pont De Nemours And Co (NYSE:DD), Monsanto Company (NYSE:MON) and Eastman Chemical Company (NYSE:EMN) declined 2.4%, 0.9%, 0.5%, 1.4% and 1.1, respectively.