Roller-coaster week for stocks ends in slump

Sell-offs over trade wor­ries shave 558 points from Dow

Northwest Arkansas Democrat-Gazette - - FRONT PAGE -

Wall Street capped a tur­bu­lent week of trad­ing Fri­day with the big­gest weekly loss since March as traders fret over ris­ing trade ten­sions be­tween Wash­ing­ton and Bei­jing and sig­nals of slower eco­nomic growth.

The lat­est wave of sell­ing erased more than 550 points from the Dow Jones in­dus­trial av­er­age, bring­ing its three­day loss to more than 1,400 points. For the week, ma­jor in­dexes are down more than 4 per­cent.

Wor­ries that the testy U.S.-China trade dis­pute and higher in­ter­est rates will slow the econ­omy have made in­vestors un­easy, lead­ing to volatile swings in the mar­ket from one day to the next.

The S&P 500 in­dex fell 62.87 points, or 2.3 per­cent, to 2,633.08. The in­dex has ended lower three out of the past four weeks. The Dow dropped 558.72 points, or 2.2 per­cent, to 24,388.95. The Nas­daq com­pos­ite slid 219.01 points, or 3 per­cent, to 6,969.25. The Rus­sell 2000 in­dex of small-com­pany stocks gave up 29.32 points, or 2 per­cent, to 1,448.09.

On Mon­day, news that the U.S. and China had agreed to a 90-day truce in their es­ca­lat­ing trade con­flict drove stocks sharply higher, adding to strong gains the week be­fore. The next day, as doubts mounted over the like­li­hood of a swift res­o­lu­tion to the trade dis­pute, stocks sank.

That sell-off ex­tended to Thurs­day, when U.S. stock mar­kets re­opened for trad­ing af­ter a na­tional day of mourn­ing for for­mer Pres­i­dent Ge­orge H.W. Bush. An early plunge knocked 700 points off the Dow as in­vestors wor­ried the ar­rest of a se­nior Chi­nese tech­nol­ogy com­pany of­fi­cial would un­der­mine trade ne­go­ti­a­tions be­tween Wash­ing­ton and Bei­jing, but stocks bounced nearly all the way back by the end of the day on news that the Fed­eral Re­serve was con­sid­er­ing a wait-and-see ap­proach to its in­ter­est-rate in­creases.

That op­ti­mism fu­eled a rally early Fri­day, which faded into an­other sharp drop.

“We’re in a mar­ket where in­vestors just want to sell any up­side that they see,” said Lind­sey Bell, in­vest­ment strate­gist at CFRA. “The volatil­ity we’ve seen the last cou­ple of weeks has been pretty ex­treme in both di­rec­tions.”

The S&P 500 and Dow are now in the red for the year again. The Nas­daq was hold­ing on to a mod­est gain.

The cur­rent bull mar­ket for stocks, which be­gan in March 2009, has shown signs of sput­ter­ing this year, with the S&P 500 en­ter­ing into a cor­rec­tion, or drop of 10 per­cent from a re­cent high,

twice this year. The in­dex is now down 10.2 per­cent from its all-time high on Sept. 20.

The mar­ket is now on track for its worst year since 2008, when the S&P 500 ended with a 38.5 per­cent loss.

Volatil­ity has gripped the mar­ket since early Oc­to­ber, re­flect­ing in­vestors’ wor­ries that the Fed­eral Re­serve might raise in­ter­est rates too ag­gres­sively as it tries to keep in­fla­tion in check, po­ten­tially slow­ing eco­nomic growth.

“The Fed has taken the punch bowl away in get­ting back to rates where they are to­day,” said Doug Cote, chief mar­ket strate­gist for Voya In­vest­ment Man­age­ment. “We’re also go­ing to get back to more nor­mal volatil­ity.”

Traders also fear that a pro­longed trade dis­pute be­tween the U.S. and China could crimp cor­po­rate prof­its and that tar­iffs will raise costs for busi­nesses and con­sumers. Un­cer­tainty over those is­sues helped drive the mar­ket’s sell-off this week.

The U.S. has an­nounced tar­iffs on $250 bil­lion in Chi­nese im­ports this year, with the tax rate on many prod­ucts set to rise Jan. 1, while China put new taxes on $110 bil­lion in U.S. goods.

Last week­end, Pres­i­dent Don­ald Trump and his Chi­nese coun­ter­part, Xi Jin­ping, agreed over din­ner at the G-20 sum­mit in Ar­gentina to a tem­po­rary, 90-day stand­down in the two nations’ trade con­flict to al­low time to smooth out a dis­pute over Chi­nese tech­nol­ogy poli­cies that the U.S. and other trad­ing partners con­sider preda­tory.

Trump agreed to hold off on plans to raise tar­iffs on $200 bil­lion in Chi­nese goods. In re­turn, Xi agreed to buy a “very sub­stan­tial amount” of agri­cul­tural, en­ergy and in­dus­trial prod­ucts from the U.S. to re­duce its large trade deficit with China.

The de­vel­op­ment, and the boost it gave the mar­ket, didn’t last, how­ever. An­a­lysts be­gan to ques­tion whether the Trump-Xi talks put both sides any closer to re­solv­ing their dif­fer­ences.

The ar­rest of a se­nior Chi­nese tech­nol­ogy ex­ec­u­tive, which was dis­closed Wed­nes­day, also could com­pli­cate trade ne­go­ti­a­tions.

Cana­dian au­thor­i­ties ar­rested Meng Wanzhou, chief fi­nan­cial of­fi­cer at China’s Huawei Tech­nolo­gies, for pos­si­ble ex­tra­di­tion to the U.S. Meng, a prom­i­nent mem­ber of Chi­nese so­ci­ety, is sus­pected of try­ing to evade U.S. trade curbs on Iran.

On Fri­day, Cana­dian pros­e­cu­tors said Meng, a daugh­ter of the com­pany’s founder, was charged with fraud. They said Meng may have per­son­ally par­tic­i­pated in a scheme to trick U.S. fi­nan­cial in­sti­tu­tions into mak­ing trans­ac­tions that vi­o­lated U.S. sanc­tions against Iran.

The ar­rest could mark a risky new phase for many big tech­nol­ogy firms, which de­pend on net­works of fac­to­ries and sub­con­trac­tors in Asia and have bet on strong de­mand from Chi­nese con­sumers to fuel fu­ture growth.

Ap­ple, for in­stance, re­lies on China for 18 per­cent of its sales, ac­cord­ing to Fac­tSet. Chip­mak­ers rely on China even more. Nearly 23 per­cent of In­tel’s revenue comes from main­land China. That’s one rea­son tech­nol­ogy stocks, which have ac­counted for much of the mar­ket’s gains in re­cent years, led the mar­ket’s broad slide Fri­day. Ap­ple shares dropped 3.6 per­cent to $168.49, while chip­maker Ad­vanced Mi­cro De­vices slid 8.6 per­cent to $19.46.

Health care sec­tor stocks, the big­gest gainer in the S&P 500 this year, took some of the heav­i­est losses Fri­day. Med­i­cal-de­vice com­pany Cooper lost 12.3 per­cent, fall­ing to $243.01 per share.Util­i­ties, which in­vestors fa­vor when they’re fear­ful, eked out a slight gain. PPL Corp. gained 2.8 per­cent to $31.09.

Oil prices rose af­ter OPEC coun­tries agreed to re­duce global oil pro­duc­tion by 1.2 mil­lion bar­rels a day for six months, begin­ning in Jan­uary. The move would in­clude a re­duc­tion of 800,000 bar­rels per day from OPEC coun­tries and 400,000 bar­rels per day from Rus­sia and other nonOPEC nations.

The La­bor Depart­ment said U.S. em­ploy­ers added 155,000 jobs in Novem­ber, a slow­down from re­cent months but enough to sug­gest that the econ­omy is ex­pand­ing at a solid pace de­spite sharp gy­ra­tions in the stock mar­ket. The un­em­ploy­ment rate re­mained at 3.7 per­cent, nearly a five-decade low, for the third-straight month.

Bond prices rose, send­ing yields slightly lower. The yield on the 10-year Trea­sury note fell to 2.86 per­cent from 2.87 per­cent late Thurs­day.

The de­cline in bond yields, which af­fect in­ter­est rates on mort­gages and other con­sumer loans, weighed on banks, which make more money when rates are ris­ing. Mor­gan Stan­ley slid 3 per­cent to $41.32 per share.

“What we think is go­ing on is a repric­ing of growth,” said Ernie Ce­cilia, chief in­vest­ment of­fi­cer at Bryn Mawr Trust Co. “The bond mar­ket is es­sen­tially say­ing we don’t see the kind of growth that we’ve had. So what the mar­ket is do­ing is repric­ing stocks, par­tic­u­larly those that have per­formed ex­traor­di­nar­ily well, to a lower growth rate.”

“So what the mar­ket is do­ing is repric­ing stocks, par­tic­u­larly those that have per­formed ex­traor­di­nar­ily well, to a lower growth rate.”

— Ernie Ce­cilia, Bryn Mawr Trust Co.

In­for­ma­tion for this ar­ti­cle was con­trib­uted by Alex Veiga of The As­so­ci­ated Press; by Stephen Gro­cer and Matt Phillips of The

New York Times; and by Vil­dana Ha­jric and Sarah Ponczek of Bloomberg News.

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