Energy shares in the S&P 500 plunged 4 percent as West Texas Intermediate sank to the lowest since April 2009. Exxon Mobil lost 2.7 percent and Chevron retreated 4 percent. Caterpillar declined 5.3 percent and an index of railroad stocks lost 3.2 percent on concern that the energy slump may hurt spending on capital equipment and crude transportation.
The S&P 500 dropped 1.8 percent to 2,020.58 for its first four-day losing streak since 2013. The gauge fell below its average price for the last 50 days. The Dow Jones industrial average retreated 331.34 points, or 1.9 percent, to 17,501.65. More than 7.1 billion shares changed hands on U.S. exchanges, 2.9 percent above the three-month average.
“Commodities are really a leading indicator as to the health of the global economy,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “The concern is that the global economy will hurt the U.S. stocks, S&P particularly, because they’re made up of a lot of multinational companies.”
While all 10 major industries on the S&P 500 retreated Monday, with materials producers industrials each tumbling more than 2 percent, energy shares paced declines to extend a sell-off that began in June. Denbury Resources sank 7.8 percent and Noble Energy tumbled 9.6 percent.
Although cheaper oil has led to a decline in gasoline prices, boosting household purchasing power, concern is growing that it also will curb spending on capital equipment.
Evercore ISI cut its ratings on Caterpillar, United Rentals and Terex, saying the three are most heavily exposed to “contagion” from lower energy and commodity prices. United Rentals sank 11 percent for the biggest drop in the S&P 500.
Caterpillar fell to its lowest level since January 2014, as JPMorgan Chase & Co. analyst Ann Duignan downgraded the company to underweight from neutral. She also lowered her rating on Actuant and Parker-Hannifin Corp., which declined more than 3.2 percent.
Already battered by a slump in demand for its mining machinery, Caterpillar faces slowing sales of compressors, pumps and gas turbines as oil companies reduce spending. The shares have lost 7.6 percent since Dec. 26.
Its turbines are found on offshore oil rigs while its engines and compressors are used to move oil from wells to pipelines and rail cars.
Railroad stocks in the S&P 500 slid 3.2 percent for a fourth day of losses. Kansas City Southern and Union Pacific fell at least 3.4 percent.
“The declines in oil are representing something much more ominous, which is a global economic slowdown,” said Jeff Sica, president and CEO of advisory firm Circle Squared Alternative Investments, which oversees $1.5 billion. “Investors have gone past the thought that this is good for the economy.”
The Chicago Board Options Exchange Volatility Index, a measure of demand for options on the S&P 500, jumped 12 percent to 19.92 Monday, the highest level since Dec. 16.
The S&P 500 fell 1.5 percent last week, closing 1.6 percent below its all-time high reached Dec. 29, as traders sold shares that rose the most in 2014 after a three-year advance that added $9.4 trillion to equity values. The benchmark index posted its first December decline since 2007, trimming its annual increase to 11 percent.
Still, professional forecasters are calling for an 8.5 percent gain this year, and buyers of exchange-traded funds ended an obsession with bonds last quarter, sending four times as much cash to U.S. shares. It’s the first time strategists have been unanimously bullish since 2009, when stocks surged 23 percent.
The S&P 500 on Monday capped its first four-day string of losses since December 2013, dropping 3.4 percent over that time period. The gauge never fell more than three straight days in 2014, a first in data compiled by Bloomberg going back to 2000. It has tripled from its low in March 2009, including its biggest annual rally since 1997 in 2013.