US stocks closed sharply lower on Friday, with the S&P 500 ending its worst week since August, as plunging crude oil prices compounded investor nervousness on expectations for the first US interest rate hike in nearly a decade.
Oil dragged down the market as a whole, as investors worried whether a weakness in commodities signaled a broader slowdown.
Furthermore, investors were concerned about declines in China’s yuan and in high-yield debt markets.
“Positioning has been clearly along the lines of taking risk exposure off,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
The sell-off gained ground ahead of the close as investors took profits on stocks such as Amazon.com, which had performed well this year, said Dennis Dick, head of markets structure at Bright Trading LLC in Las Vegas.
“If you had a large oil position, you need to raise cash, probably from some of your winners,” he said.
The Dow Jones industrial average fell 309.54 points, or 1.76 percent, to 17,265.21, with every component in the index ending down. The S&P 500 lost 39.86 points, or 1.94 percent, to 2,012.37, and the NASDAQ Composite dropped 111.71 points, or 2.21 percent, to 4,933.47.
For the week, the S&P 500 fell 3.8 percent in its worst week since Aug. 21, while the Dow fell 3.3 percent and the NASDAQ dropped 4.1 percent.
Small caps sold off as well. The Russell 2000 index fell 5.1 percent for the week, its biggest weekly percentage decline since May 2012.
The continued plunge in oil prices added to investor uncertainty ahead of the US Federal Reserve’s expected rate hike after its meeting on Tuesday and Wednesday.
Brent futures fell to an almost seven-year low, while US crude futures fell to just above US$35 a barrel after the International Energy Agency said it expected the supply glut to worsen next year, as demand slows and OPEC shows no signs of slowing production in its fight for market share.
Adding to the somber mood, the Chinese yuan currency fell to its lowest in four-and-a-half years on concerns about the country’s slowing economy and expectations of a US rate hike.
James said investors were worried about high-yield markets, especially as it relates to high-yield debt and energy needs after New York-based Third Avenue Management said on Thursday it was trying to liquidate a roughly US$1 billion junk bond fund in the biggest failure in the US mutual fund industry since the 2008 financial crisis.
Tracking oil prices, the S&P energy index fell 3.4 percent, leading the decliners among major S&P sectors. The index has lost 11 percent since the beginning of the month in its worst month since September 2011.
The materials index was down 2.7 percent, weighed down by DuPont and Dow Chemical.
Both DuPont and Dow Chemical shares were down following a deal valuing the combined entity at US$130 billion, falling 5.5 percent and 2.8 percent respectively.
Declining issues outnumbered advancing ones on the NYSE by 2,745 to 376, for a 7.3-to-1 ratio on the downside; on the NASDAQ, 2,388 issues fell and 448 advanced for a 5.33-to-1 ratio favoring decliners.
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