U.S. stocks decline as morning rebound from selloff evaporates

AFTER SPENDING MUCH OF TUESDAY in positive territory, the U.S. equities markets fell back again, with the Standard & Poor's 500 Index losing 0.8 percent in the last hour of trading. / BLOOMBERG FILE PHOTO/TIM BOYLE
AFTER SPENDING MUCH OF TUESDAY in positive territory, the U.S. equities markets fell back again, with the Standard & Poor's 500 Index losing 0.8 percent in the last hour of trading. / BLOOMBERG FILE PHOTO/TIM BOYLE

NEW YORK – A rebound that took the Dow Jones Industrial Average up more than 440 points disappeared as traders said trepidation over what will happen in China’s market made holding on to stocks too risky for most investors.

The 30-stock index slid 1.3 percent to 15,665.77 at 4 p.m. in New York, a drop of 4 percent from its highest point. The peak-to-trough retreat matched Monday’s selloff, when concern about global growth ignited the worst selloff in four years. The Standard & Poor’s 500 Index went from a 2.9 percent gain to a 1.4 percent loss on the day, with most of the selling concentrated in the final two hours of trading.

“We just saw a crazy evaporation of gains after being up the majority of the day,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP. “People are nervous about the potential volatility that could erupt or resurface in the market. They’re not sure what’s going to happen overseas, and that uncertainty is winning out.”

The unwinding disappointed bulls who earlier in the day staked hopes on China’s efforts to inject stimulus into its economy. The central bank today cut interest rates for the fifth time since November and lowered the amount of cash banks must set aside in an attempt to stem the country’s biggest stock market rout since 1996 and a deepening economic slowdown.

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“There’s still some technical damage that needs to be corrected, and there’s still some selling that needs to take place, which is probably why we’re off intraday highs,” said Terry Morris, a senior equity manager who helps oversee about $2.8 billion at Wyomissing, Pa.-based National Penn Investors Trust Co. “We’re not just going to slingshot back up.”

More swings

After a day of wild swings, the S&P 500 lost 3.9 percent Monday. That capped a 7 percent two-day retreat, the most since December 2008, sending the index into its first correction since 2011. JPMorgan Chase & Co. Tuesday recommended buying at these levels. The Chicago Board Options Exchange Volatility Index slid 15 percent Tuesday to 34.85. The gauge, know as the VIX, surged as much as 90 percent Monday to touch the highest level since January 2009 before closing at a nearly four-year high.

Investors continued to watch economic reports for clues on the timing of an interest-rate increase by the Federal Reserve. Data Tuesday showed purchases of new homes rebounded in July, bolstering signs the real-estate market is picking up. A separate report showed consumer confidence climbed more than forecast in August, reaching the second-highest level in eight years on more favorable views of the labor market.

Traders are now pricing in a roughly one-in-four chance the central bank will act at its September meeting, from about 48 percent just before the yuan devaluation, as the rout in equity markets has shaken confidence that the global economy will be strong enough to withstand higher U.S. rates.

Fed Bank of Atlanta President Dennis Lockhart said Monday he still expects a rate raise this year, while cautioning that a stronger dollar, a weaker Chinese yuan and falling oil prices complicate the outlook.

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