U.S. Stocks Tumble on Global Growth Worries

 

The Dow Jones Industrial Average closed Tuesday with its steepest loss since the end of July, amid deepening concerns over slowing global growth.

The Dow fell 272.52 points, or 1.6%, to 16719.39. The S&P 500 index declined 29.73 points, or 1.5%, to 1935.09, and the Nasdaq Composite Index dropped 69.60 points, or 1.6%, to 4385.20. It is the second straight session of losses for major U.S. indexes after the Dow fell 0.1% on Monday.

The declines followed a selloff in European shares, as weak data on German industrial output raised more fears about third-quarter growth in the continent’s biggest economy. Traders say that in recent sessions, worries about global economic growth have prompted investors to broadly retreat from riskier investments, like stocks.

“It’s across-the-board selling,” said Viren Chandrasoma, managing director of equity trading at Credit Suisse. “There isn’t much appetite to come in and buy.”

While the U.S. economy has stood out compared with Europe, investors are fretting about the effects of the slowdown on large U.S. firms, which get a chunk of their sales overseas.

“Europe has been very important for this selloff,” said Michael Purves, head of equity derivatives research at Weeden & Co., a brokerage in Greenwich, Conn. “A lot of large-cap companies have massive exposure to the eurozone.”

Traders also eyed losses in the Dow Jones Transportation Average, which dropped 2.5%, and the small-cap Russell 2000 Index, which shed 1.7%. Investors have been uneasy after recent declines in those benchmarks, which are seen as technical indicators for the broader direction of the market.

The International Monetary Fund cut its outlook for global growth, citing weakness in the eurozone and a slowdown in several major emerging markets. The IMF expects growth to come in at 3.8% next year, down from an earlier view of 4%.

“Slowing growth in Europe has been the headline concern the last couple of weeks,” said Dan McMahon, director of institutional equity trading at Raymond James in New York. “That’s kind of where everybody’s been taking their lead.”

European shares fell to their lowest level in months, with Germany’s DAX off 1.3% to its lowest finish since Aug. 12. The broader Stoxx Europe 600 fell 1.5% to its lowest level since Aug. 15.

Although the U.S. economy has been gaining steam through much of this year, investors worry that slowdowns in other places—from Europe to China to Japan—could spill over to the U.S. Although the Federal Reserve is preparing to tighten monetary policy in the coming months, central banks elsewhere are doubling down on easy-money policies in a bid to restart flagging growth.

Paul Zemsky, chief investment officer for multiasset strategies at Voya Investment Management, said he has cut his holdings of risky assets in the last week, mainly by selling S&P 500 index funds, out of concern that slowing growth could have a spillover effect on U.S. stocks. He said he has picked up high-grade corporate bonds instead.

“It’s not a good environment to want to add to your positions,” he said. “There’s a growth scare in the market right now and Germany kind of hit us over the head with that this morning.”

Tuesday’s move lower marks the latest turbulent session for stocks, which have seen big swings in recent weeks following a relatively calm summer. Investors say they are expecting additional volatility through the end of the year as they grapple with uncertainties such as the Fed’s outlook for rate increases, slowing growth overseas and the quarterly earnings season.

“After five years of what we’ve been seeing, there should be volatility in the market,” said Eric Schoenstein, a portfolio manager of the $5.1 billion Jensen Quality Growth fund. Mr. Schoenstein said the fund cut its holdings of more volatile stocks early in the year to guard against bigger swings. “We want the portfolio to look less risky.”

Stocks are still in positive territory for the year. The S&P 500 is up 4.7%, but down 1.9% so far in October.

Later this week, investors will shift their attention to the Federal Reserve’s minutes of its September meeting, due Wednesday, which could offer clues on the central bank’s timeline for raising interest rates, widely expected next year. Also Wednesday, AlcoaInc. AA -0.25% will report third-quarter earnings, marking the unofficial start of the reporting season.

The yield on the 10-year Treasury note fell to 2.352%. Yields move inversely to prices.

In corporate news, European Union regulators opened a probe into Amazon.com Inc.AMZN -1.62% ’s tax arrangements in Luxembourg. Shares fell 1.6%.

Shares of General Motors Co. GM +0.41% fell 5.9%. The auto maker will recall about 7,600 Chevrolet Caprice police vehicles for a transmission issue, the 75th safety recall action the company has taken this year.

SodaStream International Ltd. SODA -21.94% projected sharply lower-than-expected revenue for the third quarter, amid sluggish demand for its soda makers and flavors. Shares tumbled 22%.

In commodities news, crude-oil futures declined 1.6% to $88.85 a barrel. Gold futures rose 0.4% to $1211.70 per ounce.

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