Stocks stagger in global rout
Growing concerns about a slowdown in China shook markets around the world Friday, driving the U. S. stock market to its biggest drop in nearly four years and doling out particularly harsh punishment to shares of Silicon Valley’s tech darlings.
The rout started in Asia and quickly spread to Europe, battering major markets in Germany and France. In the U. S., the selling started early and never let up. Investors ditched beaten- down oil companies, as well as Netflix, Apple and other technology icons, in part because of investor concerns over the all- important Chinese market for consumer electronics. Oil traded below $ 40 a barrel for the first time since the financial crisis, later rallying back above $ 40, and government bonds rallied as investors raced into hiding spots.
“Investors are wondering if growth isn’t coming from the
U. S. or China, where is it going to come from?” said Tim Courtney, CIO of Exencial Wealth Advisors. “This is about growth.”
By the time it was over, the Dow dropped 530.94 points for the day, closing at 16,459.75, signaling what Wall Street terms a “correction” — a drop of 10 percent below its 52- week high. The Dow peaked at 18,351 on May 19.
The Standard & Poor’s 500 index had lost 5.8 percent for the week, its worst weekly slump since 2011. That leaves the main benchmark for U. S. investments 7.7 percent below its alltime high — within shooting range of a “correction.”
Markets began falling last week after China announced a surprise devaluation of its currency, the yuan. Investors have interpreted China’s move as a sign that flagging growth in the world’s second- largest economy could be worse than government reports suggest.
On Friday, they got more bad news: A private survey showed another drop in manufacturing on the mainland. Tech stocks that until just recently had been steadily rising for several years took a real beating Friday, casting something of a cloud over a booming Silicon Valley.
The tech- heavy Nasdaq was down 3.52 percent, more than both the Dow and the S& P 500, and that put the index nearly 10 percent below its latest high and in correction territory.
Apple was off more than 6 percent for the day while Google, Facebook and GoPro each fell about 5 percent. Netflix, a darling among investors lately, plummeted more than 7 percent, erasing $ 8 billion of its value over the past two days.
For Shaw Wu, an analyst with his own private- investment firm in San Francisco, Friday’s sell- off reflected investor concerns heightened two weeks ago when growth stalwart Disney began to see its shares slump. Triggered in part over worries about so- called “cord- cutters” ditching traditional cable for on- demand streaming video, Disney shares have fallen nearly 18 percent since the company reported earnings Aug. 4. Wu said that has made many investors start to wonder about other traditional growth stalwarts like Apple and Google.
“What you’re seeing now is capitulation selling,” Wu said, referring to investors dumping shares as fast as they can over worries that the high prices can no longer be justified. “We’ve been in a bear market for a while now, but not with the winners like Netflix and Google. But now those same concerns that had investors dump Disney have caught up with companies like Apple.”
Wu said that top- drawer players such as Facebook were given a pass by investors who were willing to ignore the lofty valuations of these companies “as long as their growth story remained intact.”
“Investors were willing to pay high multiples for that growth, but we’re now starting to see some chinks in the armor, even with Apple — their most recent quarterly earnings were somewhat disappointing, and the stock got punished.”
Investors pointed to other reasons behind the recent sell- off, such as falling prices for oil and other commodities as well as the relatively high prices investors pay for U. S. stocks compared with corporate earnings.
“All of this is coming at a time when we haven’t had a correction” in many years, said Jeremy Zirin, head of investment strategy at UBS Wealth Management. The last correction occurred in October 2011.
Roberto Perli, head of global monetary policy research at Cornerstone Macro, said the market’s recent slump most likely means the Federal Reserve won’t raise its benchmark interest rate at its September meeting. Fed officials gathering next month will have to weigh the global pressures against evidence of a solid U. S. job market and improving U. S. economic growth.
“They have the luxury of being able to wait and see what happens,” Perli said. “But if the meeting was tomorrow, it’s probably fair to say that they wouldn’t tighten, given all the turmoil in the global markets.”
For all the markets’ jitters, many economists say they remain confident that the U. S. economy is resilient enough to withstand a slowdown in the developing world. And Europe’s economy appears to be emerging from its long slump.
Van Baker, an analyst with Gartner who covers mobile and wireless, blamed the dramatic selloff on a combination of renewed concerns over the economy in Greece, where Prime Minister Alexis Tsipras resigned and paved the way for early elections, and concerns over China’s slowing growth rate.
“When you add the two together, it’s a real doublewhammy,” Baker said. “The Chinese market, in particular, is of great concern to investors because of its impact on our tech companies. China is such an enormous market for Apple and other companies that sell personal electronics.”
So is this a temporary pullback or the signs of a longer bear market? Baker dodged the question, saying, “I’m not a stock prognosticator. We’ll have to wait until Monday to see what happens next.”