LONDON: U.S. stocks sold off on Thursday, pushing both the Dow industrials and the S&P 500 further into negative territory for the year, after the European Central Bank unveiled a smaller-than-expected expansion of its monetary stimulus program.
The drop came amid a sharp surge in the euro and a selloff in government bonds and European stocks, while Federal Reserve chief Janet Yellen once again signaled a U.S. interest-rate hike in mid-December.
The S&P 500 SPX, -1.44% fell 29.88 points, or 1.4%, to 2,049.63, its biggest decline since Sept. 28. The benchmark index turned negative for the year. The Dow Jones Industrial Average DJIA, -1.42% dropped 251.74 points, or 1.4%, to 17,477.67, further into negative territory for the year. The Nasdaq Composite COMP, -1.67% ended the session down 85.70 points, or 1.7%, to 5,037.5
Analysts described Thursday’s stock rout as a violent unwind of a crowded trade. See also: Beware the crowded central bank trade.
Investors had piled into the short euro/long European stocks trade, and quickly reversed the trade after the ECB’s announcement fell short of the market’s expectations, analysts said.
The details of more QE “are not the big bang that some had thought and/or hoped for,” said Peter Boockvar, chief market analyst at The Lindsey Group.
The ECB’s announcement prompted heavy short covering in the euro EURUSD, -0.0731% which jumped more than 3% versus the U.S. dollar, posting its largest one-day move since 2009.
But as investors sold the U.S. dollar, they also sold liquid dollar-denominated assets, mainly U.S. Treasurys and liquid U.S. equities, said Douglas Coté, chief market strategist at Voya Investment Management, pushing Treasury yields to fresh 5½-year highs and stocks deep into negative territory.
