NEW YORK (Reuters) – Stocks dropped more than 1 percent and were on track to end a five-week winning streak on Friday as expectations of an interest rate hike in China hit commodity prices and weighed on energy and natural resource stocks.
The Shanghai Composite Index (.SSEC) notched its biggest percentage loss in over a year on the likelihood China’s central bank was set to raise rates to tackle inflation, a move that could pressure future growth.
Commodities fell broadly, with crude oil futures down 3.2 percent and copper off nearly 3 percent. That weighed on cyclical stocks, with aluminum producer Alcoa Inc (AA.N) the top percentage loser among Dow components, slumping 3 percent to $13.39.
Also on the Dow, Exxon Mobil Corp (XOM.N) was off 1.9 percent to $70.49, while heavy machinery maker Caterpillar Inc (CAT.N) was down 2.7 percent to $80.25. The S&P energy (.GSPE) index was off 2 percent, while the materials (.GSPM) index lost 2.8 percent.
«The whole commodity complex is exceptionally weak after the overnight action in China, and we need to see how it all plays out,» said Tom Samuels, managing partner at Palantir Capital Management in Houston. «This may be the first seed of doubt about the healing power of (quantitative easing).»
The Dow Jones industrial average (.DJI) was down 125.52 points, or 1.11 percent, at 11,157.58. The Standard & Poor’s 500 Index (.SPX) was down 17.98 points, or 1.48 percent, at 1,195.56. The Nasdaq Composite Index (.IXIC) was down 43.17 points, or 1.69 percent, at 2,512.35.
The S&P neared the 61.8 percent retracement of its slide from the historic highs in 2007 to the lows in March 2009 — then backed away from that level.
This is the second time the index shied away from the 1,228 area, and its chart could be drawing a bearish «double top» formation. After the last retreat from that level in April, the S&P started a correction that took to its July lows.
Boeing Co (BA.N) also pressured the Dow, shedding 3.5 percent to $63.10 after Sanford C. Bernstein cut the stock to «market perform,» citing more potential delays for its 787 Dreamliner.
Stocks have stalled in recent sessions after a two-month rally that climaxed last week, when the Dow and Nasdaq hit levels not seen since the collapse of Lehman Brothers more than two years ago.
Worries that Ireland may default on its debt as well as declines in commodity prices and an unexpectedly weak outlook from Cisco Systems Inc (CSCO.O) helped cloud the market outlook, though some investors said the underlying trend is strong.
«We’re in a post-Fed and post-election environment, and stocks are waiting to see what the next mover is going to be,» said Andy Fitzpatrick, director of investments at Hinsdale Associates in Hinsdale, Illinois. «In the meantime, markets are distracted by Europe and China.»
On the upside, Intel Corp (INTC.O) rose 1.1 percent to $21.43 after the chipmaker boosted its dividend.
In other corporate news, Nvidia Corp (NVDA.O) jumped 5.5 percent to $13.30 after the graphics chipmaker forecast higher sales for the current quarter.
D.R. Horton Inc (DHI.N) fell 4.7 percent to $11.60 after the biggest U.S. homebuilder said orders fell, even as it reported a narrower quarterly loss.
J.C. Penney Co Inc (JCP.N) was off 2.8 percent to $31.22 after the department store retailer said discounting boosted sales but ate into margins. At the same time, Dillard’s Inc (DDS.N) surged 12 percent $31.36 after its results.