By Joseph Ciolli and Jeremy Herron
Specialist John Parisi, left, and trader Luigi Muccitelli work on the floor of the New York Stock Exchange on Aug. 5, 2014
U.S. stocks fell, with the Standard & Poor’s 500 Index (SPX) sinking to the lowest since May, amid concern that tension in Ukraine may escalate. The dollar rose after American services data added to evidence growth is gathering pace.
The Standard & Poor’s 500 Index slid 1 percent, while the dollar strengthened to an almost nine-month high versus the euro. Treasury two-year note yields touched the lowest level in more than two weeks at 4:43 p.m. in New York. Ten-year yields trimmed earlier gains sparked by speculation interest rates may rise early next year. U.S. crude tumbled to a six-week low.
President Vladimir Putin ordered the government to prepare a response to U.S. and European sanctions as Poland warned that a renewed buildup of Russian troops on Ukraine’s border raises the specter of a possible invasion. Service industries in the U.S. expanded in July at the fastest pace since December 2005, driving speculation economic growth is robust enough for the Federal Reserve to raise its benchmark interest rate before the middle of 2015.
“The market had been jittery,” Lou Shaduk, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, said in an interview. “You have Polish Minister Sikorski talking about Russian forces poised to pressure or invade Ukraine and that’s all the buyers needed today to go into hiding.”
Ukraine Tension
The S&P 500 extended losses and Treasuries reversed after Polish Foreign Minister Radoslaw Sikorski said Russia had restored its combat readiness on the Ukraine border. He did not give any indication that an incursion was imminent.
Putin is showing no sign of backing down since the U.S. and the European Union tightened sanctions last week, with Russia massing forces on its neighbor’s border in the biggest military buildup since troops were withdrawn from the area in May.
Selling accelerated after the S&P 500 slipped below last week’s closing level of 1,925.15 and yesterday’s intraday low of 1,921.2. The gauge has lost 3.4 percent since reaching a record high of 1,987.98 on July 24 and came within 70 points of erasing its gain for the year.
“I would attribute the dip in S&P to the rumor that Russia’s getting ready to invade Ukraine,” Walter “Bucky” Hellwig, a Birmingham, Alabama-based senior vice president at BB&T Wealth Management, said by phone. “That created additional technical difficulties with high-frequency trading.”
Refiners, Airlines
Among stocks moving today, Target Corp. lost 4.4 percent after cutting its estimate for second-quarter profit on an expense stemming from a December data breach. Pioneer Natural Resources Co. sank 5.7 percent and Halliburton Co. dropped 3.4 percent to lead an index of energy stocks lower by 2.1 percent, the most among 10 S&P 500 groups.
U.S. airline stocks followed European carriers lower after business newspaper Vedomosti reported Russia may limit or ban trans-Siberian flights by European Union airlines, citing people familiar with the matter. Delta Air Lines Inc. fell 2.8 percent and United Continental Holdings Inc. slid 3.5 percent.
Treasuries retreated with equities earlier in the day as concern grew that the improving U.S. economy may force the Fed to act on rates sooner than anticipated, as the central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep its benchmark low for a “considerable time” after the bond buying ends.
Economic Recovery
The pickup among service providers, combined with the strongest rate of growth in more than three years at American factories, shows the world’s largest economy was strengthening at the start of the third quarter. Faster payroll growth is helping fuel consumer demand, raising the odds a self-reinforcing cycle of increased hiring and spending is under way.
The Bloomberg Dollar Spot Index rose to the highest level in five months as the greenback appreciated 0.3 percent to $1.3375 per euro. The yen reversed an earlier decline against the dollar on haven demand amid the tension over Ukraine.
“In the last couple weeks we’ve been getting reports that the economy is definitely recovering,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said in a phone interview. “People are now focusing on the fact that the Fed isn’t going to be this accommodative forever.”
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