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Posted by on Aug 21, 2015 in Economy, Featured | 13 comments

Wall Street tumbles 500 points on China fears; Dow confirms correction

wallstreettumbles

By Chuck Mikolajczak

(Reuters) – Fears of a China-led global economic slowdown drove Wall Street to its steepest one-day drop in nearly four years on Friday and left the Dow industrials more than 10 percent below a May record.

Wall Street’s selloff this week suggested investors are growing nervous about paying high prices for stocks at a time of minimal earnings growth, tumbling energy prices and an expected rate hike by the U.S. Federal Reserve that could gradually usher the end of almost a decade of easy money.

Stocks have seen few large moves this year, staying in a narrow range throughout 2015, but volatility spiked this month once China surprisingly devalued its currency. Weak Chinese manufacturing data on Friday, and another drop in China’s stock market, rattled investors’ nerves and led to Friday’s tumble.

While this month’s selloff has been swift, many analysts feel the declines may be close to being exhausted, with a turnaround possibly starting as soon as next week.

“You’re definitely witnessing a perfect storm in terms of China timing, people on vacation that affects liquidity, and you’ve got a lot of questions on the Fed and people are obviously focused on oil,” said Andrew Frankel, co-president of Stuart Frankel & Co in New York.

“If you’re buying a stock, you’re dipping a toe in here.”

The Dow Jones industrial average <.DJI> closed down 530.94 points, or 3.12 percent, to 16,459.75, the S&P 500 <.SPX> lost 64.84 points, or 3.19 percent, to 1,970.89 and the Nasdaq Composite <.IXIC> dropped 171.45 points, or 3.52 percent, to 4,706.04.

Next week, investors will focus on housing data, which has been strong of late, and the preliminary reading of second-quarter GDP, which could lead investors back towards riskier assets if they point to an improving U.S. economy.

The Russell 2000 <.RUT> index of small-cap stocks also confirmed a move into correction territory, marking a 10-percent decline from its most recent closing high on June 23.

The CBOE Volatility index <.VIX>, Wall Street’s so-called fear gauge, touched its highest since October and notched its biggest-ever weekly percentage gain.

The S&P slumped 5.8 percent for the week, its biggest weekly decline since September 2011. The index lost more than $1 trillion of its value this week, according to S&P Dow Jones Indexes. Only 10 S&P 500 components advanced on Friday.

The selloff was broad, with all 10 major sectors in the red. The energy index <.SPNY> dropped 2.6 percent as U.S. crude oil <CLc1> dipped below $40 a barrel for the first time since the 2009 financial crisis.

Many investors still anticipate the U.S. central bank will begin raising interest rates by the end of the year, but fewer of them expect a September hike after reading minutes from the Fed’s July meeting on Wednesday.

Apple <AAPL.O>, still by far the most valuable U.S. company, fell 4.6 percent to $107.44, the biggest drag on the S&P and the Nasdaq.

For the week, the Dow dropped 5.8 percent and the Nasdaq tumbled 6.8 percent.

The drag from Apple pushed the technology <.SPLRCT> sector down 4.2 percent. The consumer staples index <.SPLRCS> fell 2.6 percent, moving into the red for the year. Eight of the 10 S&P sectors are now in negative territory for the year.

Six stocks fell for every one that closed higher on the NYSE; on the Nasdaq, the ratio was about 2-1/2 decliners for every 1 advancer.

The S&P 500 posted no new 52-week highs for the first time since Aug. 8, 2011, after S&P downgraded the U.S. credit rating, while there were 75 new lows; the Nasdaq recorded 13 new highs and 276 new lows.

Volume was heavy, with about 10.6 billion shares traded on U.S. exchanges, well above the 6.75 billion average this month, according to BATS Global Markets.

(Additional reporting by Sinead Carew; Editing by James Dalgleish and Nick Zieminski)

  • KP

    The recent correction seemed bound to happen, and I am (kind of) okay with it being fast and hard rather than sideways and gradual for 2-3 years. Get rid of the frothy investing and grow again. It had been 12 months since the last correction (down 10%).

    If we are down 20% in four months and in a Bear market, I retract the above 🙂

    • dduck12

      It indeed may continue down to 15,000

      • KP

        That is the number I had in mind.

        Just do it next week.

        Then I will consider me some CVX and DIS for the long haul.

  • tidbits

    Duck is right, I fear. Earlier this year (approximately March), volatility became a regular staple of the markets. At that point, I began to soul search about the value of remaining in the market. After watching the volatility for several weeks, I got out on a high day about seven weeks ago, at Dow 18,000+ and have watched the 8% decline since that decision. Don’t be surprised to see the down draft continue with the duel concerns of oil price deflation and issues with the Chinese economy. We could be approaching an unstable period of some duration.

    It’s a good time to hedge your bets.

    • dduck12

      You are genius, I got out at 14,000. A liiiiiite early. But what the hell, I have followed my own advice to clients to which I say:” It’s the time in the market, not timing the market”- an old adage, BTW.

      • tidbits

        You’re correct about not timing, but sometimes you have to see the trends. I waited until December, 2000 and January, 2001 (split the tax years) to get out of the tech market, though the drop started in March 2000. I still made plenty having begun tech investing in 1994. It wasn’t timing, but the trend was clear by late 2000.

        Then back to the market in 2010, about year after the Obama rebound started. Again not timed, but in response to a clear trend.

  • We got out of the stock market in 2005. That didn’t entirely shield us in 2008, but we’ve long since recovered. Took a big hit today, but it was entirely by my own hand, writing a check to pay for the new house.

    • KP

      Congrats on the new house, Bob!

      Out in 2005 was genius.

      I added in 2008 at about 8,000.

      DJI in 2010 was 10,000.

      2012 was 12,000

      2014 was 16,000

      2015 was 18,000 // now 16,000

      • Out in 2005 was genius.

        Not so much; that’s when we retired, and cutting risk by moving from stocks to safer things is a fairly normal thing to do then.

        I have a little sign that says MEGO — My Eyes Glaze Over — that I hold up when my financial guy is telling me more than I want to know about what he’s doing with our money. That’s usually within the first five minutes of our quarterly meetings. Lately our quarterly meetings have been about a year apart.

  • DdW

    Not to worry people. For me it is only a loss of about $200 million — peanuts.

    As you know I am very, very rich, worth over $9 billion, that is $9,200,000,000, who is counting?

    I don’t care about that. All I care is about making America rich, making America great again.

    I promise you, elect me as your president — the sooner the better, skip the primaries — and my very first day in office I will make sure you get all your money back and make you very rich. That is after I kick out those 11 million rapists and murderers.

    It is going to be a very busy first day.

    Did I tell you I am very, very rich?

  • KP

    Ideally, staying in the market while renting in SoCal from 2008 to 2013 and then investing in coastal SoCal real estate in Jan 2013 (in six months it went up 30%) would have been the ticket.

    I didn’t. I am not that smart. I don’t have a crystal ball.

    I got in back at the height in Aug 2013 after starting in January 2013.

    Unless you cut a check like Bob, it can be a _slow_ process.

    Still, 5% a year since then may be worth the best weather in the world.

    dduck?

  • The_Ohioan

    I don’t get in and out. From Jan 2009 my stocks have either doubled or tripled. I have one lucky pick since 2009 that quintupled. I don’t plan to get out now, either. But I’m a novice who doesn’t know much and have a broker I trust. At least until the next statement comes out. 🙂

    • dduck12

      Studies show jumping in and out is very detrimental to the average portfolio.

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