Wall Street down again

Dow ends ‘tough week’ of sur­prises by drop­ping over 550 points

Houston Chronicle - - BUSINESS - By John C. Roper STAFF WRITER

Stocks tum­bled again Fri­day, cap­ping a fret­ful week for in­vestors who are con­cerned about U.S.-China trade re­la­tions, a jobs re­port that fell short of ex­pec­ta­tions and the po­ten­tial for a global eco­nomic slow­down.

Ma­jor stock in­dexes fell 4 per­cent in a week that saw the Dow Jones In­dus­trial Av­er­age plunge nearly 800 points Tues­day and more than 550 Fri­day as it neared what an­a­lysts call a cor­rec­tion — when stocks de­cline 10 per­cent or more from their peak.

The Dow is down 9 per­cent from its re­cent peak of 26,828

reached Oct. 3.

Mar­kets don’t like sur­prises, and the past few days had their share of them, begin­ning with re­newed ten­sions be­tween the U.S. and China fu­eled by the ar­rest of a Chi­nese ex­ec­u­tive and end­ing with a fed­eral re­port re­leased Fri­day that showed job and wage growth was weaker than ex­pected.

“It’s a tough week,” said Phil Guarco, man­ag­ing di­rec­tor of J.P. Mor­gan Pri­vate Bank. “All that stuff is start­ing to slow the econ­omy a lit­tle bit.”

Other in­dexes also slid. The broader S&P 500 dropped 63 points (2.3 per­cent), and the tech­nol­o­gy­heavy Nas­daq Com­pos­ite fell 219 points (3 per­cent). More in­vestors sought the safety of bonds, driv­ing up prices and push­ing down in­ter­est rates. The yield on the 10-year Trea­sury slipped to 2.85 per­cent from 3.24 per­cent just a month ago.

Trade con­cerns

Bill Gilmer, an economist at the Univer­sity of Hous­ton, said trade con­cerns again seemed to rat­tle mar­kets. Stocks have swung wildly in re­cent weeks on news of de­vel­op­ments in the trade war be­tween the U.S. and China, the world’s two big­gest economies. In­vestors worry that tar­iffs im­posed by the Trump ad­min­is­tra­tion and re­tal­ia­tory mea­sures taken by China and other coun­tries will un­der­mine the global eco­nomic ex­pan­sion, which has al­ready shown signs of slow­ing.

“Trade seems to be driv­ing the stock mar­ket as much as any­thing right now,” Gilmer said .

The cat­a­lyst this week was the ar­rest in Canada of Meng Wanzhou, the chief fi­nan­cial of­fi­cer of Chi­nese telecom­mu­ni­ca­tions com­pany Huawei, at the urg­ing of the U.S. An­a­lysts and in­vestors wor­ried that the ar­rest could fuel re­newed mis­trust be­tween the nations as they are try­ing to iron out trade dif­fer­ences. An­a­lysts are con­cerned that China could re­spond by tak­ing a harder line on ne­go­ti­a­tions.

Fun­da­men­tals strong

Pres­i­dent Don­ald Trump tweeted Fri­day that China talks are go­ing “very well.” No de­tails of the talks have been made pub­lic.

In­vestors have fo­cused re­cently on what is known as the in­verted yield curve, when long-term in­ter­est rates, a mea­sure of fu­ture ex­pec­ta­tions, fall be­low short-term rates, which re­flect cur­rent con­di­tions. Banks profit by bor­row­ing short-term at low in­ter­est rates and then lend­ing money long term at higher rates.

When the yield curve in­verts, banks can’t make money and they pull back on lend­ing, mak­ing it hard for peo­ple to buy cars and homes and for busi­nesses to ex­pand and hire.

An in­verted yield curve has his­tor­i­cally been a pre­cur­sor to re­ces­sions. Rates are closing in on be­ing in­verted, but fun­da­men­tals in the U.S. re­main strong.

The un­em­ploy­ment rate, 3.7 per­cent, re­mains near a 50-year low. The La­bor Depart­ment re­ported Fri­day that U.S. em­ploy­ment rose by an ad­di­tional 155,000 in Novem­ber, an­other solid gain but short of ex­pec­ta­tions by economists who ex­pected about 200,000 jobs.

“We have strong fun­da­men­tals,” said Michael McDuffie, se­nior in­vest­ment of­fi­cer for North­ern Trust’s wealth ad­vi­sory ser­vices in Hous­ton. “We are tran­si­tion­ing to an econ­omy that is more slowly grow­ing.”

This year, we still have had very solid job growth, im­prov­ing wage growth, we don’t have any sig­nif­i­cant bub­bles as hous­ing has slowed down but it’s at pop­u­la­tion growth,” McDuffie said. “You don’t see any data of peo­ple mail­ing in their house keys.”

Most economists ex­pect 2019 to be an­other year of growth for the U.S. econ­omy and la­bor mar­ket. Guarco said an­a­lysts at J.P. Mor­gan Pri­vate Bank see a 50-50 chance of re­ces­sion in the first half of 2020. Any re­ces­sion, he said, would likely be far milder that the last one, which be­gan in late 2007 and in­ten­si­fied af­ter the fi­nan­cial cri­sis of 2008.

“Any kind of re­ces­sion we get would be much lighter than 2008,” Guarco said.

Oil prices

OPEC, along with Rus­sia and oth­ers, on Fri­day reached a mod­est deal to jointly cut oil pro­duc­tion by 1.2 mil­lion bar­rels a day and help sta­bi­lize col­laps­ing crude oil prices.

Crude prices jumped nearly 5 per­cent Fri­day on news of the deal be­ing struck as the U.S. benchmark set­tled at $52.61 a bar­rel.

U.S. crude prices have plunged nearly 30 per­cent over the past two months, from a peak of $76 a bar­rel in Oc­to­ber to $51 near the end of Novem­ber. Most U.S. oil pro­duc­ers can be prof­itable at about $55 a bar­rel, but cap­i­tal in­vest­ments, such as the pur­chase of land, ma­chin­ery or build­ings, can slow when prices are be­low $60 for an ex­tended time.

Richard Drew / AP file photo

The Dow is down 9 per­cent from a re­cent peak Oct. 3.

Mark Lenni­han / As­so­ci­ated Press

The Dow’s 550-point fall Fri­day came three days af­ter a drop of nearly 800.

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