Wary investors send markets down
U.S.-China trade dispute among many worries as Dow slides near ‘correction’ Economy expanding at solid clip despite jobs slowdown, gyrations in the markets
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 by 4 percent in a week that saw the Dow Jones Industrial Average plunge nearly 800 points on Tuesday and 550 points on Friday as it neared what analyst call a correction — when stocks decline by 10 percent or more from their peak.
The Dow is down 9 percent from its recent peak of 26,828 reached Oct. 3. WASHINGTON — 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 Labor Department said Friday that the unemployment rate remained 3.7 percent, nearly a five-decade low, for the third straight month. Average hourly pay rose 3.1 percent from a year ago, matching the previous month’s figure, which was the best since 2009.
The economy is expanding at a healthy pace, but rising trade
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 technology heavy Nasdaq Composite fell by 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 that trade concerns again seemed to rattle markets.
Stocks have swung wildly in recent weeks on news of developments in the trade war between the United States 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 CFO of Chinese telecommunications company Huawei, at the urging of the United States.
Analysts and investors worried 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.
President Trump tweeted Friday that China talks are going “very well.” No details of the talks have been made public.
Fundamentals strong
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 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 United States 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 another 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 following 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 by 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 last 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.