US stocks slide on fears for recovery

US stocks fell sharply on Monday, sending the S&P 500 through several important psychological barriers as investors worried about the pace of economic recovery.

The benchmark index fell below 900 for the first time this month, taking it below its 50-day and 200-day moving averages and into negative territory for the year.

Commodities prices fell as the dollar strengthened. Fears over global demand knocked oil prices, which continued to fall from their highs.

Shares in energy companies followed oil lower, with ConocoPhillips falling 5.9 per cent to $40.43 and Schlumberger giving up 5.5 per cent to $52.32.

Copper prices also suffered after estimated Chinese copper consumption dropped 3.5 per cent for May compared to April, leading to concerns that the country might soon stop restocking the metal.

Freeport McMoRan, which mines copper, lost 11.3 per cent to $45.18. Prices of other metals also fell, bringing down shares in the companies that produce them. AK Steel gave up 13 per cent to $16.50 while Alcoa, which produces aluminium, fell
8.9 per cent to $10.02.

The general economic worries were exacerbated by a report from the World Bank that warned the global recession would be deeper than it had predicted in March, with the world economy suffering a 2.9 per cent decline in 2009.

“The figure is surprisingly downbeat given the fact that it is even lower than what the International Monetary Fund is expecting,” said Paul Ashworth, senior US economist at Capital Economics.

Karl Mills, president of Jurika, Mills & Keifer, agreed, saying: “The economy is still sicker than people realise.”

The S&P closed down 3.1 per cent at 893.04, while the Dow Jones Industrial Average dropped 2.4 per cent to 8,339.01 points and the Nasdaq Composite index declined 3.4 per cent to 1,766.19 points.

Investors bet that volatility would return to the markets after several weeks of trading within a narrow range.

The Vix index, a measure of implied volatility known as Wall Street’s fear gauge spiked 11.4 per cent to 31.19.

US investors were also nervous about the pace of the domestic recovery after Walgreen, the fast growing chain of chemists and general retailers, reported lower profits than Wall Street expected, despite rising sales. The shares fell 5.7 per cent to $29.64.

Nick Kalivas, an analyst at MF Global, said that recent signs on corporate earnings were not promising. “The profit outlook is becoming less certain given the recent trend in earnings reports and a more mixed economic outlook,” he wrote.

Delta Air Lines dropped 6.9 per cent to $5.65 after Richard Anderson, the chief executive, said the company has absorbed a $250m hit to second-quarter revenue as a result of swine flu, and had been forced to cut capacity as a result.

Shares in Apple fluctuated as optimism over sales of the new model of its iPhone competed with concerns over the health of Steve Jobs, its talismanic chief executive.

The stock slipped in pre-market trade after reports at the weekend that Mr Jobs had undergone a liver transplant two months ago.

But the shares rose after the company said it had sold more than 1m units of the new iPhone, compared to forecasts of closer to 500,000.

The stock opened higher, but then dropped as the market extended its losses. It closed 1.5 per cent lower at $137.37.

Bank of America lost 9.7 per cent to $11.94 after two more board members joined the list of departures from the company, bringing the total to seven since April.

Its rival Citigroup dropped 5.4 per cent to $3, with analysts at Fox-Pitt saying that the bank’s planned conversion of preferred shares into common equity would put “significant pressure” on the stock.

Credit card company Discover Financial Services avoided the worst of the selling in the financial sector following its announcement of a surprise quarterly profit last week.

The figures caused analysts at RBC Capital Markets to raise their price target on the company on Monday, and the shares fell a modest 0.1 per cent to $9.31.