Health-Care Shares Drive Stock Selloff

By Leslie Josephs 

U.S. stocks tumbled to a more than one-month low on Monday, weighed down by the health-care sector, as politicians ramped up scrutiny of drug pricing.

The Dow Jones Industrial Average dropped 312.78 points, or 1.9%, to 16001.89, its lowest closing level since August 25. The Dow had dipped below 16000 for the first time since Sept. 1 on an intraday basis.

The S&P 500 fell 49.57 points, or 2.6%, to 1881.77, while the Nasdaq Composite dropped 142.53 points, or 3%, to 4543.97.

Valeant Pharmaceuticals International Inc. shares fell 16.5% to $166.50 after Democrats on the House oversight committee asked the committee chairman to force Valeant to provide documents explaining price increases for two heart drugs.

Last week, biotechnology stocks fell after Hillary Clinton targeted specialty drug makers, tweeting about a plan that would counter "price gouging" and proposing new rules that would control prescription-drug spending.

The Nasdaq Biotechnology Index fell 6% on Monday, erasing gains for the year

"The language environment in [pharmaceutical pricing] is going to be negative in the space," said Jeffrey Yu, head of single stock derivatives trading at UBS AG. Investors are "naturally...going to express some type of concern."

Mr. Yu added that many investors are looking to sell their biggest gainers of the year before the end of the quarter to take profits.

James Hartwell, president of Deer Park, Ill.-based Essex LLC, said he has reduced exposure to the biotechnology sector by 15% this year because the sector had appreciated so much. "It's been performing so well," he said, adding that his strategy for the remainder of the year is to "just buy into the weakness of companies you want to own in the long term."

Energy and raw-material producing companies also posted sharp declines on Monday as commodity prices fell following a report showing industrial profits in major commodity consumer China fell 8.8% in August from a year ago.

Shares in commodities giant Glencore PLC sank more than 29% to an all-time low as the mining company continued to suffer from a slump in commodity prices and concerns over its debt-laden balance sheet.

In the U.S., shares of Williams Cos. fell 12.1% to $36.56 after Energy Transfer Equity LP said it would buy the rival pipeline operator for about $32.6 billion.

Copper miner Freeport McMoRan Inc. dropped 9.1% to $8.91, as base metals prices continued to slip.

Alcoa Inc. shares rose 5.7% to $9.59 after the aluminum maker said it would split into two publicly traded companies, one focusing on mining and refining and the other on more finished industrial products.

Chesapeake Energy Corp. shares lost 9.2% to close at $6.71. Nymex crude-oil futures fell $1.27, or 2.8%, to $44.43 a barrel.

Concern over a slowdown in China, the world's second-largest economy, and its potential impact on the Federal Reserve's plans to normalize monetary policy after years of rock-bottom rates, has fueled market volatility in recent weeks. Some investors interpreted the Fed's decision to keep short-term rates near zero at its meeting in September as a lack of confidence in the U.S. economic recovery.

Global markets rallied Friday after Fed Chairwoman Janet Yellen laid out plans for an increase in rates by the end of the year, but the bounce-back was short-lived.

Federal Reserve Bank of New York President William Dudley said Monday the central bank will likely raise rates later this year. Mr. Dudley also emphasized that a rate increase could come at any Fed meeting, including in October. That intensified the focus on Friday's nonfarm payrolls report for September, the last one before the Fed's October meeting.

The yield on the benchmark 10-year Treasury note was 2.100%, compared with 2.167% on Friday, as demand for haven assets rose. Yields fall as prices rise.

If the central bank doesn't raise rates, it could have an even worse effect on share prices, said Keith Bliss, senior vice president at brokerage Cuttone & Co.

"If we're in an economic situation where we can't support [a quarter-basis point rate increase], then we're in bigger trouble than we all realize," he said.

In Asia, the Nikkei 225 Stock Average closed down 1.3%, while the Shanghai Composite rose 0.3%.

Citigroup lowered Monday its forecast for global growth in 2016, reducing it to 2.9% from 3.1%. It was 3.5% as recently as May. In a note, economists at the bank said a global recession is a "rapidly rising and significant risk."

European auto and mining stocks fell sharply Monday. Volkswagen AG shares dropped 7.3%, amid the continuing emissions-test scandal that has hit the company.

In currency markets, the euro rose 0.4% against the dollar, trading at $1.1238. The dollar fell 0.6% against the yen.

Gold fell 1% to $1,133.00 a troy ounce.

Write to Leslie Josephs at [e-mail]

(END) Dow Jones Newswires

September 28, 2015 16:50 ET (20:50 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.