By Sue Chang, MarketWatch , Chris Matthews
Blue-chip gauge fell 470 points at session low
U.S. stocks closed sharply lower Thursday, dogged by worries
about global growth and as investors continued to weigh minutes of
the Federal Reserve's September meeting, which were viewed as
hawkish.
A big drop in China's stock market
(http://www.marketwatch.com/story/asian-markets-pull-back-led-by-sharp-declines-in-china-2018-10-17)
underscored simmering worries about the possibility of
emerging-market troubles spreading to other regions as well as the
impact of U.S.-China trade tensions on the global economy.
How did the benchmarks fare?
The Dow Jones Industrial Average dropped 327.23 points, or 1.3%,
to end at 25,379.45 and the S&P 500 index shed 40.43 points, or
1.4%, to 2,768.78. The Nasdaq Composite Index slid 157.56 points,
or 2.1%, to 7,485.14.
What drove the market?
Chinese stock markets touched a fresh four-year low and a
seemingly hawkish Fed has combined to undercut investor
sentiment.
The minutes of the Fed's September meeting, released on
Wednesday, indicated that policy makers are prepared to forge ahead
(http://www.marketwatch.com/story/federal-reserve-minutes-indicate-interest-rates-will-have-to-rise-high-enough-to-slow-down-the-economy-2018-10-17)
with increases and will likely hike rates again as early as
December, as expected. Tightening policy comes as no surprise but
it does elevate concerns about increasing borrowing costs and the
impact that could have on equity prices, market participants
say.
Last week's downdraft in stocks was attributed partly to a jump
in yields of U.S. government bonds, which can also dampen appetite
for stocks against so-called risk-free Treasurys. Rate hikes are
expected to drive yields higher still.
Read:Here's why stock-market investors suddenly freaked out over
rising bond yields
(http://www.marketwatch.com/story/stock-market-investors-are-right-to-be-frightened-by-rising-bond-yields-economist-2018-10-12)
Concerns about the vitality of Asian markets, in particular
China's, may also be weighing on the investment mood. Shanghai's
composite index fell 2.9% and the Shenzhen A-Share dropped 2.7%.
Weakness in Beijing's markets came after China's currency, the
yuan, briefly touched its weakest level since January of 2017. One
buck last fetched 6.9379 yuan , up 0.2%. Those currency moves came
after Treasury refrained from labeling China a currency manipulator
(http://www.marketwatch.com/story/us-treasury-declines-to-label-china-a-currency-manipulator-but-says-recent-yuan-weakness-is-a-concern-2018-10-17)
in its biannual report on currency practices released late
Wednesday.
See:Here's why investors are anxious about China's next move
(http://www.marketwatch.com/story/heres-why-investors-are-anxious-about-chinas-next-move-2018-10-18)
The U.S. and China have been locked in a trade spat that doesn't
show signs of easing and that threatens to produce intermittent
headwinds for markets.
Which data were in focus?
First-time jobless claims fell by 5,000 from a week ago, as the
Labor Department reported just 210,000 Americans applying for
initial jobless benefits in the week ending Oct. 13, in line with
economist estimates, according to a poll by MarketWatch, and close
to 49-year lows
(http://www.marketwatch.com/story/jobless-claims-drop-5000-to-210000-in-mid-october-2018-10-18).
The Philadelphia Fed manufacturing index came in slightly below
(http://www.marketwatch.com/story/philly-fed-manufacturing-index-signals-steady-growth-in-october-2018-10-18)
last month's reading, with a print of 22.2 in October, compared
with 22.9 in September. Still, the figures were above expectations
and indicate healthy activity in the factory sector.
The Conference Board said its leading economic indicators rose
0.5% in September.
What were strategists saying?
That stocks entered October, a notorious month for volatility,
overbought and with much of the good news on earnings already baked
in are all contributing factors for the market's weakness, said
Bruce Bittles, chief investment strategist at Baird.
See:Stocks are due for a lift as buyback blackouts end, says
JPMorgan
(http://www.marketwatch.com/story/stocks-are-due-for-a-lift-as-buyback-blackouts-end-says-jpmorgan-2018-10-18)
"Technically, we have been pointing out that stocks were
vulnerable as leadership was very narrow at the top with everyone
owning FANG stocks either outright or through ETFs and mutual
funds. Corrections are normal [and] so far this looks to be a
correction that could carry further, setting up the possibility for
a year-end rally later on," he said. FANG is an acronym for popular
tech stocks made up of Facebook Inc. (FB), Amazon.com Inc. (AMZN),
Netflix Inc. (NFLX) and Google parent Alphabet Inc. (GOOGL)
(GOOGL).
Tom Essaye, president of the Sevens Report, pointed to weak
export Japanese export data and a poor showing in the Chinese
equities market as reason for softness in trading.
Read:Don't sweat a stock-market selloff with midterms around the
corner, says strategist
(http://www.marketwatch.com/story/dont-sweat-a-stock-market-selloff-with-midterms-around-the-corner-says-strategist-2018-10-18)
"Are any of those hugely negative events for U.S. equities?
Probably not, but we need some good news for the market to turn
higher," he said. Essaye predicted that as earnings season heats up
next week, that good news will be on the offing, " But until we get
a solid run of earnings growth and macro data, the stocks will move
sideways, if not down."
Jay Hatfield, CEO and portfolio manager Infrastructure Capital
Management, blames recent weakness in stocks on "normal October
stock market behavior," that is a result of increased short
interest and a decline in buybacks that typically occur in the
lead-up to earnings season. "We are going to be range bound for the
next week or so as we find the bottom," he said.
Which stocks were in focus?
Philip Morris International Inc. (PM) shares rose 3.5% after the
company beat earnings estimates for the third quarter.
United Rentals Inc. (URI) skidded 15% after the equipment-rental
company beat Wall Street estimates for the quarter
(http://www.marketwatch.com/story/united-rentals-shares-slide-after-earnings-2018-10-17)
but said its outlook didn't include a pending $2.1 billion
acquisition.
Alcoa Corp. shares (AA) rallied 5.9% after the company reported
better-than-expected earnings
(http://www.marketwatch.com/story/alcoa-stock-rises-on-earnings-beat-company-predicts-2018-aluminum-deficit-2018-10-17).
Invesco Ltd.(IVZ) rose 1.5%, after it announced the acquisition
of OppenheimerFunds, a subsidiary of Massachusetts Mutual Life
Insurance.
Endocyte Inc. shares (ECYT) soared 50% after Novartis
AG(NOVN.EB) (NOVN.EB) said it would buy the cancer-drug maker for
$2.1 billion
(http://www.marketwatch.com/story/novartis-lifts-view-announces-21b-endocyte-deal-2018-10-18).
Shares of Travelers Cos.(TRV) fell 1% even as it posted earnings
(http://www.marketwatch.com/story/travelers-profit-rises-as-catastrophe-losses-fall-2018-10-18)
and revenue above analyst expectations.
How did other markets trade?
Asian stocks were weaker with China's benchmarks hitting
multiyear lows
(http://www.marketwatch.com/story/asian-markets-pull-back-led-by-sharp-declines-in-china-2018-10-17)
and European markets fell in line with the global retreat
(http://www.marketwatch.com/story/european-bourses-edge-mostly-higher-as-strong-earnings-remain-in-focus-2018-10-18).
Crude-oil prices fell sharply
(http://www.marketwatch.com/story/oil-extends-decline-on-rising-us-supplies-and-easing-worries-over-iran-sanctions-2018-10-18),
while gold prices settled marginally higher
(http://www.marketwatch.com/story/gold-steadies-amid-limited-dollar-follow-through-from-hawkish-fed-minutes-2018-10-18)
and the U.S. dollar index firmed
(http://www.marketwatch.com/story/chinas-yuan-loses-ground-after-treasury-report-criticizes-beijings-currency-practices-2018-10-18).
--Mark DeCambre contributed to this report
(END) Dow Jones Newswires
October 18, 2018 16:26 ET (20:26 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.