Stocks tumbled Thursday, with the benchmark index of global equities sinking the most in 21 months, and bonds fell around the world after the Federal Reserve said it might phase out stimulus and China's cash crunch worsened.
The Dow Jones industrial average closed down 353.87, or 2.34%, at 14,758.32; the S&P 500 fell 40.74, or 2.5%, ending at 1,588.19; and the Nasdaq composite closed down 78.57, or 2.28%, at 3,364.64. All numbers are preliminary.
Ten-year Treasury note yields rose 11 basis points to 2.42% and touched 2.47%, the highest since August 2011, as rates surged from New Zealand to Germany.
Fed Chairman Ben S. Bernanke said the Fed might start reducing bond purchases that have fueled gains in markets globally, and end the program in 2014 should risks to the U.S. economy continue to abate. The Fed will cut its $85 billion in monthly purchases by $20 billion at its September meeting, according to economists in a Bloomberg poll. Data from China indicated manufacturing shrank at a faster pace and the benchmark money-market rate climbed to a record.
“It's a knee-jerk downward reaction because everyone is afraid that if you're taking the punch bowl away that must be bad for markets,” Philip Orlando, chief equity strategist at Federated Investors, which has about $380 billion in assets under management, said by telephone. “The market is choosing to ignore the good news embedded in the Fed's comments. All it's looking at is the reduction of the accommodation.”
The S&P 500 extended Wednesday's 1.4% drop as all 10 of its main industry groups retreated at least 2%, with only 21 stocks advancing. The benchmark index extended its decline from its last record on May 21 to 4.8%, trimming its 2013 advance to less than 12% and its rally from its bear-market low in 2009 to 135%.
Walt Disney Co., Hewlett-Packard Co. and Microsoft Corp. lost at least 3.2% to lead declines in all 30 stocks in the Dow Jones industrial average.