US markets tumbled further this week as the Syrian crisis jumped to the top of the public policy agenda amid talk of Western military action in response to Syrian President Bashar al-Assad regime’s alleged use of chemical weapons.
Oil prices spiked higher on supply fears as investors worried about potential contagion from the Syrian crisis in the oil-rich Middle East.
“Everything right now is really based on a reaction to Syria, a reaction to the spike in West Texas Intermediate crude” and concerns that higher oil prices will hinder economic growth, said Lee Munson, chief investment officer at Portfolio LLC.
For the week, the Dow Jones Industrial Average dropped 200.2 points (1.3 percent) to 14,810.31.
The broad-based S&P 500 fell 30.53 (1.8 percent) to 1,632.97, while the tech-rich NASDAQ Composite Index declined 67.92 (1.9 percent) to 3,589.87.
Last month was the roughest month for stocks in more than a year.
The Dow blue-chip index shed 689 points, or 4.5 percent, the largest monthly points and percentage decline since May last year.
The S&P 500’s 3.1 percent drop also marked the index’s worst month since then.
Last month’s swoon on Wall Street came on the heels of a series of all-time records set in prior months.
Markets generally expect the US Federal Reserve will scale back its US$85 billion a month bond-buying program, perhaps as soon as its policy meeting this month.
The Fed has said its decision to taper the stimulus, called quantitative easing, depends on data showing continued broad improvement in the economy.
The data has been mixed. This week’s data included some disappointments, such as drops in durable goods orders and pending home sales, and weak consumer spending in July that raised alarms about growth.
On the upside, the government’s upgrade on second-quarter economic growth to 2.5 percent from the previous estimate of 1.7 percent was surprisingly robust.
“The market has been positioning for a taper in September,” said Davy Levy, portfolio manager at Kenjol Capital Management.
A key question is whether the program will be slashed by US$10 billion or US$20 billion, he said.
“We have a healing banking system and we have an economy that’s expanding and interest rates reflecting, not taper, but higher future growth expectations and that got sidelined a little bit with the Syria thing earlier this week,” Munson said.
The likelihood of a Syrian military strike fluctuated throughout the week, swaying markets lower as action appeared imminent on Monday and Tuesday, with markets recovering somewhat midweek on easing concerns about a strike. On Friday, US President Barack Obama said he had made no “final decision” on taking military action against al-Assad’s regime, but made clear the US would take action.
Levy described a “buyer’s strike” on Wall Street in light of the uncertainty surrounding Syria and the Fed and the anemic trading volumes of the August vacation season.
“There’s just no impetus to buy,” Levy said. “We’re heading into a three-day weekend with plenty of uncertainty and we’re also heading into a month with quite a bit of uncertainty.”
Next week’s busy economic calendar includes reports on construction spending, the trade deficit, the Fed’s Beige Book and the Institute for Supply Management’s indices on the manufacturing and service sectors.
The week culminates with the Friday report on last month’s jobs and unemployment, a key indicator for the Fed ahead of its monetary policy meeting on Sept. 17 and 18.
Analysts said the Syria crisis and Fed uncertainty will likely limit the upside to equities in the coming weeks, but the market’s medium-term prospects still look good.
Syria should not have a long-term impact on stocks “unless the conflict evolves into something much more expansive,” Levy said.