Stock prices tumbled again Thursday as a series of big December plunges has stocks on track for their worst month in a decade.
The Dow Jones Industrial Average dropped 600 points mid-Thursday afternoon before rebounding slightly and closing with a 464-point, 2 percent loss at 22,855, bringing its losses since Friday to more than 1,800 points.
The benchmark S&P 500 index fell 2.3 percent to 2,442 points just before 2.30pm but closed at 2,467, 1.58 percent down. It has slumped 11 percent this month and is now 15 percent below the peak it reached in late September.
The technology-heavy Nasdaq composite did even worse, and is now down 20 percent from its record high in August having closed Thursday with a 108-point loss.
After steady gains through the spring and summer, stocks have nosedived in the fall as investors worry that global economic growth is cooling off and that the US could slip into a recession in the next few years. Oil prices fell sharply again.
The market swoon is coming even as the US economy is on track to expand this year at the fastest pace in more than a decade. Markets tend to move, however, on what investors anticipate will happen well into the future, so it’s not uncommon for stocks to sink even when the economy is humming along.
Right now, markets are concerned about the potential for a slowing economy and two threats that could make the situation worse: the ongoing trade dispute between the US and China, which has lasted most of this year and shows few signs of easing, and rising interest rates, which act as a brake on economic growth by making it more expensive for businesses and individuals to borrow money.
Stock prices tumbled again Thursday as a series of big December plunges has stocks on track for their worst month in a decade. The Dow Jones Industrial Average dropped as much as 600 points on Thursday before rebounding slightly and closing at a loss of 464 points
The technology-heavy Nasdaq composite dropped four percent shortly before 2.30pm Eastern but bounced back and closed with a smaller, yet still significant, 108-point loss
The benchmark S&P 500 index fell 2.3 percent to 2,442 points just before 2.30pm but closed at 2,467, 1.58 percent down. It has slumped 11 percent this month and is now 15 percent below the peak it reached in late September
The selling in the last two days came after the Federal Reserve raised interest rates for the fourth time this year and signaled it was likely to continue raising rates next year, although at a slower rate than it previously forecast.
Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, said that Fed Chairman Jerome Powell didn’t appear concerned about the state of the US economy, despite deepening worries among investors that growth could slow even more in 2019 and 2020. Wren said investors want to know that the Fed is keeping a close eye on the situation.
‘He may be a little overconfident,’ said Wren. ‘The Fed needs to be paying attention to what’s going on.’
Powell also acknowledged that the Fed’s decisions are getting trickier because they need to be based on the most up-to-date figures on jobs, inflation, and economic growth. For the last three years the Fed told investors weeks in advance that it was almost certain to increase rates. But things are less certain now, and the market hates uncertainty.
Treasury Secretary Steven Mnuchin said the market’s reaction to the Fed was ‘completely overblown’.
Investors are responding to a weakening outlook for the US economy by selling stocks and buying ultra-safe US government bonds. The bond-buying has the effect of sending long-term bond yields lower, which reduces interest rates on mortgages and other kinds of long-term loans. That’s generally good for the economy.
At the same time, the reduced bond yields can send a negative signal on the economy. The bond market has correctly predicted several previous US recessions by buying long-term bonds and sending yields down.
At 2.15pm Eastern time, the S&P 500 index was down 49 points to 2,456, its lowest since August 2017.
The Dow fell 518 points, or 2.2 percent to 22,718. The Nasdaq composite shed 168 points, or 2.5 percent, to 6,468.
The Russell 2000 index of smaller companies dropped another 34 points, or 2.6 percent, to 1,314.
Analysts at the New York Stock Exchange (above) and around the world kept an exhaustingly close eye on the markets throughout the day as most metrics were in decline
Smaller company stocks have been crushed during the recent market slump because slower growth in the US will have an outsize effect on their profits. Relative to their size, they also tend to carry more debt than larger companies, which could be a problem in a slower economy with higher interest rates.
The Russell 2000 is down 24 percent from the peak it reached in late August and it’s down 14 percent for the year to date. The S&P 500, which tracks larger companies, is down 8 percent.
The possibility of a partial shutdown of the federal government also loomed over the market on Thursday, as funding for the government runs out at midnight Friday. In general, shutdowns don’t affect the U.S. economy or the market much unless they stretch out for several weeks, which would delay paychecks for federal employees.
Oil prices continued to retreat. They’ve dropped more than 40 percent since early October. Benchmark US crude fell 4.5 percent to $46.02 a barrel in New York. Brent crude, used to price international oils, slipped 4.8 percent to $54.50 a barrel in London.
Bond prices were mixed. The yield on the two-year Treasury stayed at 2.65 percent, while the yield on the 10-year note dipped to 2.76 percent from 2.77 percent.
The gap between those two yields has shrunk this year. When the 10-year yield falls below the two-year yield, investors call it an ‘inverted yield curve.’ That hasn’t happened yet, but investors fear it will. Inversions are often taken as a sign a recession is coming, although it’s not a perfect signal and when recessions do follow inversions in the yield curve, it can take a year or more.
‘The bond market has been telling us something for about a year, and that is there’s not going to be much inflation and there’s not going to be a sustained surge in economic growth,’ said Wren, of Wells Fargo.
In France, the CAC 40 lost 1.8 percent and Germany’s DAX fell 1.4 percent. The British FTSE 100 slipped 0.8 percent. Indexes in Italy, Portugal and Spain took bigger losses.
Tokyo’s Nikkei 225 lost 2.8 percent and Hong Kong’s Hang Seng gave up 1 percent. Seoul’s Kospi shed 0.9 percent.
As investors adjusted to the prospect of a weaker economy and lower long-term interest rates, the dollar fell to 110.90 yen from 112.36 yen. The euro rose to $1.1483 from $1.1368. The British pound rose to $1.2688 from $1.2621. That sent the price of gold higher, and it gained 0.9 percent to $1,267.9 an ounce. Silver rose 0.3 percent to $14.87 an ounce and copper, which is considered an indicator of economic growth, fell 0.7 percent to $2.70 a pound.