US Stocks Tumble in Year's Second-Biggest One-Day Drop
06/21/2012| 04:41pm US/Eastern
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--Major benchmarks fall in year's second-biggest one-day decline
--Stocks tumble after weak readings on U.S. manufacturing, jobs
--Weak data prompt bearish market call from Goldman Sachs
--Nasdaq snaps five-session streak of gains
By Chris Dieterich
NEW YORK--Global-growth worries slammed stocks Thursday, triggering a bearish recommendation from Goldman Sachs that accelerated declines and helped drive major benchmarks to their second-biggest one-day drop of the year.
The Dow Jones Industrial Average dropped 250.82 points, or 2%, to 12573.57, while the Standard & Poor's 500-stock index fell 30.18 points, or 2.2%, to 1325.51. The Nasdaq Composite shed 71.36 points, or 2.4%, to 2859.09, snapping a five-session streak of gains.
The Dow inched higher at the open but quickly turned red after data showed mid-Atlantic manufacturers' business conditions deteriorated sharply this month, according to the Federal Reserve Bank of Philadelphia.
Another sour reading from the jobs market also weighed. The number of Americans filing for jobless benefits fell slightly last week, though the prior week's figure was revised higher, indicating the labor market is sputtering.
"What we're seeing is the job market slowing to a crawl," said Saira Malik, head of global equity research for TIAA-CREF in San Francisco.
Stocks slid to session lows after analysts at Goldman Sachs recommended clients set up short positions in the S&P 500. The analysts set a short target for the benchmark index at 1285, more than 5% lower than Thursday's close, writing that Thursday's soft U.S. reports provide "further evidence that weakness has extended into June." Short sellers borrow shares from other investors and sell them in the hope of buying them back at a lower price later.
Traders also cited rumors that the tab for Spain's bank bailout may be higher than previously reported.
Energy and materials stocks led all 10 of the S&P 500's sectors lower after reports showed business activity in the euro zone and manufacturing activity in China contracted in June.
The reports of slowing industrial activity crimped demand for commodities, and aluminum company Alcoa fell 4.2%, making it the Dow's biggest percentage decliner. Blue chips Exxon Mobil and Chevron each fell more than 3.3% as oil prices dropped below $80 for the first time this year.
Additionally, traders cited lingering disappointment that the Federal Reserve held off on announcing more aggressive stimulus measures Wednesday. Instead, the Fed opted to extend "Operation Twist," a program in which the central bank sells short-term Treasurys and buys longer-dated bonds to help tamp down long-term borrowing costs.
The Dow had rallied 6.1% from June 4 through Tuesday, ahead of the Fed's policy decision, largely on hopes for stimulus measures.
"A lot of people bought into QE3, so we went up from June lows almost in a straight line. It was a little much, and a lot of that money is coming off," said Robert Verderese, a managing director on the trading floor of Knight Capital, referring to a third round of quantitative easing.
European markets turned lower after the weak U.S. data. The Stoxx Europe 600 fell 0.5% and broke a four-day winning streak. A Spanish bond auction received strong demand, although at sharply higher yields than in previous auctions.
Most Asian stock markets fell on worries about the Chinese economy after the gauge of China's manufacturing activity showed more weakness.
Crude-oil futures for August delivery fell 4% to settle at $78.20 a barrel, and gold futures for June delivery shed 3.1% to settle at $1564.50 a troy ounce. The U.S. dollar rose against the euro and the yen. The yield on 10-year U.S. Treasury bonds fell to 1.616% as demand rose.
In corporate news, shares of Bed Bath & Beyond slumped 17% after the company reported fiscal first-quarter earnings that topped analyst estimates, though its second-quarter outlook was below projections.
Red Hat fell 6.2% after the software provider reported a slowdown in revenue that has been booked but hasn't yet been collected, even though its quarterly revenue and earnings were better than Wall Street expected.
Rite Aid jumped 6.8% after the drug-store chain reported better-than-expected quarterly results, although it lowered full-year revenue and its same-store sales outlook because of an increase in sales of generic drugs.
Celgene slid more than 11% after the company withdrew an application to European Union health regulators for the approval of Revlimid, its drug to treat multiple myeloma.
Meanwhile, Onyx Pharmaceuticals soared 43% after the company said its multiple-myeloma treatment, Kyprolis, received a positive vote from a Food & Drug Administration committee.
Micron Technology slipped 7.8% after the semiconductor maker reported a wider-than-expected fiscal third-quarter loss, citing weaker flash-memory pricing and declining margins.
Sun Healthcare shot up 37% after the company agreed to be acquired by Genesis Healthcare in a deal valued at approximately $275 million net of cash and debt.
Write to Chris Dieterich at christopher.dieterich@dowjones.com
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