Fears of a China-led global economic slowdown drove Wall Street to its steepest one-day drop in nearly four years on Friday and left the Dow industrials more than 10 percent below a May record.
Wall Street’s selloff this week suggested investors are growing nervous about paying high prices for stocks at a time of minimal earnings growth, tumbling energy prices and an expected rate hike by the US Federal Reserve that could gradually usher the end of almost a decade of easy money.
Stocks have seen few large moves this year, staying in a narrow range throughout the year, but volatility spiked this month once China surprisingly devalued its currency. Weak Chinese manufacturing data on Friday and another drop in China’s stock market rattled investors’ nerves and led to Friday’s tumble.
Photo: AFP
While this month’s selloff has been swift, many analysts feel the declines may be close to being exhausted, with a turnaround possibly starting as soon as next week.
“You’re definitely witnessing a perfect storm in terms of China timing, people on vacation that affects liquidity, and you’ve got a lot of questions on the Fed and people are obviously focused on oil,” said Andrew Frankel, copresident of Stuart Frankel & Co in New York.
“If you’re buying a stock, you’re dipping a toe in here,” he said.
Photo: AFP
The Dow Jones Industrial Average closed down 530.94 points, or 3.12 percent, to 16,459.75; the S&P 500 lost 64.84 points, or 3.19 percent, to 1,970.89; and the NASDAQ Composite Index dropped 171.45 points, or 3.52 percent, to 4,706.04.
Next week, investors will focus on housing data, which has been strong of late, and the preliminary reading of second-quarter US GDP, which could lead investors back toward riskier assets if they point to an improving US. economy.
The Russell 2000 index of small-cap stocks also confirmed a move into correction territory, marking a 10 percent decline from its most recent closing high on June 23.
The CBOE Volatility index, Wall Street’s so-called fear gauge, touched its highest since October and notched its biggest-ever weekly percentage gain.
The S&P slumped 5.8 percent for the week, its biggest weekly decline since September 2011. The index lost more than US$1 trillion of its value this week, according to S&P Dow Jones Indexes. Only 10 S&P 500 components gained on Friday.
The selloff was broad, with all 10 major sectors in the red. The energy index dropped 2.6 percent as US crude oil dipped below US$40 a barrel for the first time since the 2009 financial crisis.
Many investors still anticipate that the Fed will begin raising interest rates by the end of the year, but fewer of them expect an increase next month after reading minutes from the Fed’s meeting last month on Wednesday.
Apple, still by far the most valuable US company, fell 4.6 percent to US$107.44, the biggest drag on the S&P and the NASDAQ.
For the week, the Dow dropped 5.8 percent and the NASDAQ tumbled 6.8 percent.
The drag from Apple pushed the technology sector down 4.2 percent. The consumer staples index fell 2.6 percent, moving into the red for the year. Eight of the 10 S&P sectors are now in negative territory for the year.
Six stocks fell for every one that closed higher on the NYSE; on the NASDAQ, the ratio was about 2-1/2 decliners for every 1 advancer.
The S&P 500 posted no new 52-week highs for the first time since Aug. 8, 2011, after S&P downgraded the US credit rating, while there were 75 new lows; the NASDAQ recorded 13 new highs and 276 new lows.
Volume was heavy, with about 10.6 billion shares traded on US exchanges, well above the 6.75 billion average this month, according to BATS Global Markets.
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