US stocks tumble amid ECB's stimulus moves, Fed rate signals

Traders work on the floor of the New York Stock Exchange (NYSE) on December 3, 2015 in New York City. PHOTO: AFP
Traders work on the floor of the New York Stock Exchange (NYSE) on December 3, 2015 in New York City. PHOTO: AFP

NEW YORK (BLOOMBERG) - The Standard & Poor's 500 Index slumped the most in two months as the scale of the European Central Bank's additional stimulus measures disappointed some investors, while Federal Reserve Chair Janet Yellen signaled the economy is ready for higher borrowing costs.

Equities fell to their lowest level in almost three weeks as investors grapple with an array of influences, including divergent policies from major central banks, uneven economic data and turbulence in commodities markets. Energy shares slid Thursday for a second session despite a rebound in oil prices, and health-care companies had their biggest tumble in nearly two months.

The S&P 500 dropped 1.4 per cent to 2,049.62 at 4 p.m. in New York, following a 1.1 per cent slide on Thursday. The gauge sank below its average price during the past 200 days for the first time in three weeks. The Dow Jones Industrial Average lost 252.01 points, or 1.4 percent, to 17,477.67. The Nasdaq Composite Index declined 1.7 per cent. About 8 billion shares traded hands on U.S. exchanges, 13 per cent above the three-month average.

There is "no panic, just disappointment'' with the ECB, as the selloff seems to be orderly, Ryan Larson, head of equity trading at RBC Global Asset Management U.S. Inc. in Chicago, said in an interview. "Couple that with renewed terrorism concerns following yesterday's tragic events in California, Chairwoman Yellen reiterating again this morning the desire to raise rates sooner rather than later, albeit gradually, and it's all been enough for participants to take money off the table."

The ECB will extend its quantitative easing program until at least March 2017 and broaden the range of assets purchased while keeping the pace of monthly buying steady at 60 billion euros (S$91.5 billion), President Mario Draghi said. The bank's Governing Council cut its deposit rate to minus 0.3 percent, in line with forecasts by economists in a Bloomberg survey. Policy makers left the main refinancing rate and the marginal lending rate unchanged.

"There were huge expectations for Mr. Draghi and the ECB to provide further stimulus at today's meeting, and in the markets mind they fell short of those expectations," Mr Larson said. Mr Draghi had been preparing markets for further stimulus since October, prompting economists surveyed by Bloomberg to unanimously predict the central bank would boost its efforts this week.

Following the ECB, Yellen delivered a cautiously upbeat outlook for the U.S. economy, signaling the conditions necessary for an interest-rate increase have been met and that she hopes to tighten monetary policy slowly after liftoff. Her comments before Congress's Joint Economic Committee were nearly identical to portions of a speech she gave Wednesday to the Economic Club of Washington. Traders are pricing in 74 per cent odds the Fed will raise rates at the conclusion of its next meeting on Dec. 16.