Sharp Decline Puts Dow in Correction Territory
December 14 2018 - 4:39PM
Dow Jones News
By Corrie Driebusch and Riva Gold
The Dow Jones Industrial Averaged fell into correction territory
Friday as disappointing economic data from China and the eurozone
sparked a retreat by investors and traders hesitant to enter the
weekend with big bets.
A steep drop at the end of a week has become a pattern during
the recent stretch of market volatility: The Dow's roughly
500-point fall of 2% Friday is the third steepest this month. The
other two declines also came a day before the stock market was set
to be closed.
Investors and traders say they are uneasy entering a weekend
with large bets on stocks in such volatile times, especially
because of frequent geopolitical developments when stock markets
are closed.
"We have a political machine that's able to communicate any time
of the day," said Andrew Slimmon, senior portfolio manager with
Morgan Stanley Investment Management. "Who wants to take the risk
that something comes up and you're long?"
The Dow Jones Industrial Average declined nearly 500 points to
roughly 24100, putting all three major U.S. stock indexes
simultaneously in correction territory -- typically defined as a
fall of at least 10% from a recent high -- for the first time since
March 2016.
The S&P 500 fell 1.9%, and the Nasdaq Composite dropped
2.3%. With those losses, all three indexes ended the week lower.
The S&P 500 is down more than 11% from its recent high, hit in
September, while the Nasdaq is off nearly 15% from its August
high.
The declines, led by technology and other companies closely
linked to the Chinese and global economy, signaled the weekslong
choppiness in markets around the globe isn't over, despite a slight
reprieve earlier in the week.
"It's been hard to avoid the damage in the markets the past
couple weeks, " said Matthew Forester, chief investment officer at
BNY Mellon's Lockwood Advisors. He said he has been favoring bonds
with higher credit quality and longer durations, but it has been
trickier to shift his stockholdings due to the all-inclusive nature
of the selling.
Friday's losses followed a similar pattern, with real estate and
utilities shares posting smaller declines than other sectors. They
tend to be favored by investors in volatile times for their steady
payouts.
Health-care companies were among the worst performers as Johnson
& Johnson slumped nearly 10% after Reuters reported the company
knew for years that its baby powder sometimes contained asbestos.
The drop took about 80 points off the Dow industrials and pushed
the S&P's health-care sector down 3%.
Energy stocks in the S&P 500 declined 2.2% as oil prices
resumed their slide. U.S. crude dropped 2.8% to $51.12 a
barrel.
The selloff came as data showed China's economic downturn
deepened last month more than economists expected, as Beijing works
to halt a slowdown while grappling with a trade conflict.
Official figures showed a November slowdown in industrial
production amid issues among auto makers and property markets,
while growth in retail sales dropped to its lowest level in more
than 15 years.
"For a while, the Chinese economy was the extra bit that kept
the global total going," said Alastair Winter, chief economist at
Daniel Stewart & Co.
Mao Shengyong, a spokesman for China's National Bureau of
Statistics, said China's economic growth was nonetheless on track
to achieve its annual target in 2018.
Hong Kong's Hang Seng Index fell 1.6%, while the Nikkei Stock
Average lost 2%. Declines spread to European markets, where the
Stoxx Europe 600 lost 0.6%.
Adding to the downbeat tone, purchasing managers' surveys
separately showed that French business activity unexpectedly
contracted for the first time in 2 1/2 years, according to IHS
Markit, while German's composite purchasing managers index reached
its lowest level in four years.
That came a day after the European Central Bank cut its economic
growth forecasts, highlighting the climate of uncertainty around
trade tensions and market volatility.
Worries about world growth and trade relations have contributed
to steep swings in stock and bonds markets recently, even as the
U.S. economy has been relatively steady.
The concerns have sparked a broad retreat from risky assets. In
the week through Wednesday, investors withdrew record amounts from
global equity funds, according to EPFR Global.
Friday's moves came after world stocks had rebounded earlier
this week as The Wall Street Journal reported that China was set to
introduce an industrial policy that is friendlier to foreign
businesses. President Trump said on Twitter earlier in the week
that "productive" trade talks were under way.
Many economists expect the trade conflict to continue despite a
90-day tariff truce that Mr. Trump and his Chinese counterpart, Xi
Jinping, reached in early December.
Write to Corrie Driebusch at corrie.driebusch@wsj.com and Riva
Gold at riva.gold@wsj.com
(END) Dow Jones Newswires
December 14, 2018 16:24 ET (21:24 GMT)
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