By Jessica Menton
The Dow Jones Industrial Average tumbled as much as 785 points Thursday before sharply paring those losses in the final hour of the session, showcasing the volatility that has rocked markets since the start of the fourth quarter.
Major indexes opened modestly lower and continued falling throughout the morning as the arrest of a top Chinese technology executive and a decline in oil prices exacerbated recent concerns about global growth.
But stocks pared their declines after The Wall Street Journal reported Federal Reserve officials are considering whether to signal a new wait-and-see mentality at their meeting in December that could slow down the pace of rate increases next year.
"Today has been one of the craziest trading days of the year," said Mark Esposito, founder and chief executive of Esposito Securities. "If the Fed eases off raising rates, then the concern about a recession falters and goes away."
The blue-chip index fell 79.40 points, or 0.3%, to 24947.67, and the S&P 500 lost 4.11 points, or 0.2%, to 2695.95. Both indexes are modestly higher for the year, after briefly sliding back into the red for 2018 earlier in the day.
The Nasdaq Composite added 29.83 points, or 0.4%, to 7188.26, bringing the technology-heavy index's gains for 2018 to 4.1%.
Fed officials still think the broad direction of short-term interest rates will be higher in 2019, the Journal reported, pointing to recent interviews and public statements. But as they push up their benchmark, they are becoming less sure of how quickly they will need to act or how far they will need to go.
Although CME data assign a 73.2% probability of a rate increase at the Fed's December meeting, figures show a less clear consensus for 2019. Federal-funds futures, used to place bets on the course of rates, show just a 7.9% chance that there will be three rate increases by June 2019, down from 30% a month ago.
Investors will next turn their attention to Friday's highly anticipated employment report. Economists surveyed by the Journal expect employers added 198,000 jobs during November and unemployment held at 3.7%.
Economists expect a further acceleration in average hourly earnings, estimating wages advanced 3.2% for the month from a year earlier.
"Investors can accept higher wages that indicate some level of economic strength," said Michael Arone, chief investment strategist for State Street Global Advisors. "The concern is whether higher wages will flow through into inflationary measures that could spur the Fed to raise rates more aggressively than the market can tolerate."
U.S. Treasury yields continued slumping Thursday. The yield on the benchmark U.S. 10-year Treasury note settled at 2.872%, down from 2.921% in the previous session. Yields move inversely to prices.
U.S. government bonds are on the edge of a yield-curve inversion, in which shorter-dated bonds yield more than longer-dated ones. An inverted curve is often interpreted as a signal of a looming recession.
But Mr. Arone shook off recession fears, saying that even though earnings growth for S&P 500 companies is expected to slow next year, he still expects an increase of 9%.
"The U.S. has never had a recession when U.S. corporate profits have been growing," Mr. Arone said. "So although the backdrop is shifting somewhat from a higher growth regime to a lower growth regime, it's too early to call the end of the bull market."
Markets started the week on a high note after President Trump reached a 90-day trade truce with his Chinese counterpart over the weekend, but that optimism turned to caution Tuesday, when the Dow industrials plunged nearly 800 points. U.S. markets were closed Wednesday for a national day of mourning for President George H.W. Bush.
Big intraday moves have characterized much of trading since the beginning of October as investors have parsed what signs of slowing global growth, rising interest rates and slumping commodity prices mean for the longevity of the nearly 10-year-old bull market.
Investors were spooked early Thursday by the arrest of Huawei Technologies' chief financial officer in Canada over alleged violations of sanctions on Iran, which fanned fears of another escalation in tensions between the world's two largest economies.
Tech firms have been among those worst hit by icy trade relations between the U.S. and China.
Even so, some wealth-management professionals are sticking with technology. Ron Weiner, managing director and partner of RDM Financial Group at HighTower, said he is advising clients that stocks are still a long-term value, specifically technology and health-care shares, as opposed to defensive-oriented sectors such as consumer staples.
"If my choice is to buy Apple or Clorox, I'm staying in Apple," Mr. Weiner said. He added that buying defensive stocks right now might feel safe, but technology companies, including Intel Corp. and Microsoft Corp., still pay a decent dividend.
Elsewhere, U.S. crude fell 2.6% to settle at $51.49 a barrel after Saudi Arabia's oil minister said there had yet to be any agreement made over oil output cuts.
Overseas, the Stoxx Europe 600 index slid 3.1%. Japan's Nikkei 225 fell 1.9% and China's Shanghai Composite dropped 1.7%.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
December 06, 2018 17:32 ET (22:32 GMT)
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