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Wall St. Extends Drop Into Sixth Day After Global Sell-Off Wall St. Extends Drop Into Sixth Day, Setting Stage for Another Awful October
(about 3 hours later)
Wall Street tumbled again on Thursday, as choppy trading gave way to broad-based stock declines late in the afternoon. October is living up to its ominous reputation.
Investors are contending with multiple concerns, including rising borrowing costs that could dampen economic growth and growing tensions between Beijing and Washington. Worries about rising interest rates eased briefly early in the day after a report showing muted inflation helped send yields on government bonds lower. Stocks on Wall Street tumbled again on Thursday, as choppy early trading gave way to another bout of broad-based selling. The declines were widespread, touching everything from previously high-flying tech shares to usually insulated sectors like consumer staples and utilities.
But jitters emerged again in the afternoon, when declines in the Standard & Poor’s 500-stock index began to gather pace. Shortly before 3 p.m. the broad index was again down more than 2 percent. That was on top of a 3.3 percent decline the day before. The S. & P. 500, the market benchmark, closed lower on Thursday, its sixth straight daily decline. When the dust settled, every sector of the Standard & Poor’s 500-stock index had dropped, leaving the stock market benchmark down an additional 2.1 percent. That slump followed Wednesday’s 3.3 percent decline, which was the market’s biggest dive in eight months.
“The global economy and markets are in a delicate situation,” said Carsten Brzeski, chief economist at ING Bank in Frankfurt. “While the status quo is still good, risks are increasing.” So far in October — which looms large in the minds of investors as the month of the 1929 and 1987 crashes — stocks are down 6.4 percent. That puts the month on a pace to be the worst October for stocks since 2008, when they fell nearly 17 percent.
Stocks were hit particularly hard in Asia, where no market was spared in the sweeping sell-off. Stocks in Shanghai, Tokyo, Seoul and Hong Kong dropped 4 percent or more in a punishing trading session. “Today it feels a lot more like there’s just money coming out of the market,” said John Linehan, chief investment officer for equities at T. Rowe Price in Baltimore. “I think there’s a level of anxiety about the market, especially given how far we’ve come.”
Europe’s major stock indexes fell less drastically — by about 1.5 percent — because they had already been on a downward trend for several months. Investors who have ridden the nearly decade-long bull market in stocks are now contending with a growing crop of concerns, including rising borrowing costs that could dampen economic growth and growing tensions between the United States and China. Worries about rising interest rates eased briefly early in the day after a report showing muted inflation helped send yields on government bonds lower. The yield on the 10-year Treasury note ended the day just below 3.15 percent, lower than it had been in several days.
[Read more about what the rise in bond yields means for investors.] But the easing of rates did little to comfort investors who are also worrying about deteriorating relations between Washington and Beijing. On Wednesday, United States officials said they had charged a Chinese intelligence official with espionage after he was extradited from Belgium. On Thursday, the Department of Energy said it would tighten controls on Chinese imports of civil nuclear technology.
The recent selling reflects a significant change in Wall Street’s mood, which had been ebullient amid strong corporate profits.
But a variety of forces have started to weigh on investors. The Federal Reserve is expected to increase interest rates further, which could raise the cost of borrowing in the United States and around the world.
Another factor are the simmering tensions between Washington and Beijing, which appear to be getting worse. On Wednesday, United States officials said they had charged a Chinese intelligence official with espionage after he was extradited from Belgium. The Trump administration also moved to more closely scrutinize corporate deals by foreign investors in the United States, a step aimed primarily at China.
Christine Lagarde, managing director of the International Monetary Fund, warned on Thursday that if the tensions between the United States and China continued to escalate, “the global economy would take a significant hit.”Christine Lagarde, managing director of the International Monetary Fund, warned on Thursday that if the tensions between the United States and China continued to escalate, “the global economy would take a significant hit.”
“Our strong recommendation,” Ms. Lagarde said at a meeting in Bali, “is to de‑escalate those tensions and to work toward a global trade system that is stronger, that is fairer, and that is fit for purpose and fit for the future.” “Our strong recommendation,” Ms. Lagarde said at a meeting in Bali, Indonesia, “is to de‑escalate those tensions and to work toward a global trade system that is stronger, that is fairer, and that is fit for purpose and fit for the future.”
Commodity prices also tumbled on Thursday, with the decline in oil prices, for example, weighing on shares of energy producers. Reflecting concerns about the global economy, commodity prices also tumbled on Thursday, with the decline in oil prices, for example, weighing on shares of energy producers.
Earlier in the day, stocks were hit particularly hard in Asia, where no market was spared in the sweeping sell-off. Stocks in Shanghai, Tokyo, Hong Kong and Seoul, South Korea, dropped 4 percent or more.
Stocks in China have been declining for months amid signs of economic softness and worries about the impact of President Trump’s trade war. Over the weekend, the People’s Bank of China pumped $175 billion into the economy to help shore it up. Worried about the impact of negative information on its citizens, China has censored negative economic news.Stocks in China have been declining for months amid signs of economic softness and worries about the impact of President Trump’s trade war. Over the weekend, the People’s Bank of China pumped $175 billion into the economy to help shore it up. Worried about the impact of negative information on its citizens, China has censored negative economic news.
In Shanghai, where the market was already in bear-market territory, stocks closed down more than 5 percent, around their lowest level since November 2014. Some market observers questioned whether the government could step in to stem the losses, as it did in 2015 when a summer stock market rout started a global sell-off. Shares also fell in Europe on Thursday, though the declines were less extreme than in the United States or Asia. The region is also vulnerable to a long list of economic risks, including the possibility of a disorderly exit by Britain from the European Union and the potential for Italy to provoke a new eurozone debt crisis.
At that time, the government banned short selling, suspended initial public offerings and prohibited investors who owned more than 5 percent of a stock from selling it. Officials also deployed a “national team” of state-owned financial institutions to buy up stocks and help bolster the market as it tumbled more than 25 percent.
Europe is also vulnerable to a long list of economic risks, including the possibility of a disorderly exit by Britain from the European Union, and the potential for Italy to provoke a new eurozone debt crisis.
Italy’s populist government has drafted a spending plan that would defy European budget rules to fulfill election promises. The market interest rates on Italian bonds have spiked as investors worry that the country may not be able to service its debt, which is equivalent to more than 130 percent of annual economic output.Italy’s populist government has drafted a spending plan that would defy European budget rules to fulfill election promises. The market interest rates on Italian bonds have spiked as investors worry that the country may not be able to service its debt, which is equivalent to more than 130 percent of annual economic output.
The yield, or market interest rate, on 10-year Italian government bonds reflected those fears on Thursday, rising as high as 3.61 percent after closing at 3.51 percent on Wednesday. While geopolitical issues have sprung to the fore, subtler shifts in the backdrop of the stock market might be producing outsize reactions. With the bulk of the earnings season about to start on Friday, many American companies have paused their share repurchase programs to comply with blackout periods, potentially worsening stock market swings.
“That’s another level of support that’s sort of gone in this period,” said Marina Severinovsky, an investment strategist at the asset manager Schroders.
More broadly, investors are readjusting to the slow withdrawal of support from central banks — such as the Federal Reserve — which has acted as a tailwind for stocks since the market rally began in March 2009.
The Fed says it will continue to lift interest rates in the face of robust economic growth, despite direct criticism of the policy from Mr. Trump in recent days.
The Fed is also starting to significantly shrink its balance sheet, effectively withdrawing some of the money it pumped into the financial system during and after the financial crisis a decade ago.
“I think these are kind of the teething pains for asset markets as we kind of get away from super-easy money,” said Michael Feroli, chief United States economist at JPMorgan Chase.