Dow falls more than 250 points on concerns about slowing economic growth

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November 9, 2018 12:56pm NYSE:DIA

From Mark DeCambre: U.S. stocks are down midday Friday, following a hotter-than-expected reading on producer prices, a continuing decline in oil prices, and after the Federal Reserve met expectations by holding interest rates steady before an expected rate hike next month.

How are benchmarks performing?

The Dow Jones Industrial Average DJIA, -0.84% was down 224 points, or 0.9%, at 25,966, and the S&P 500 index SPX, -1.07% was off 30 points, or 1%, at 2,776, while the Nasdaq Composite Index COMP, -1.84% was retreating 134 points, or 1.8%, at 7,396.

On Thursday, the Dow DJIA, -0.84% gained 10.92 points to 26,191.22, while the S&P 500 index  SPX, -1.07% shed 7.06 points, or 0.3%, to 2,806.83 and the Nasdaq Composite Index COMP, -1.84% fell 39.87 points, or 0.5%, to 7,530.88.

For the week, the Dow is poised to register an increase of 3%, the S&P 500 was on pace to return 2.3% over the past five sessions, while the Nasdaq was looking at a 1.2% gain over the same period.

What’s driving the market?

Chairman Jerome Powell’s Fed held benchmark rates at a range between 2% and 2.25% on Thursday afternoon, and said that the central bank “expects further gradual increases in the target range for the federal-funds rate.”

The policy-setting Federal Open Market Committee delivered no surprises to Wall Street investors. However, investors will continue to wrestle with policymakers’ hopes to normalize interest rates after a decade of easy-money policies.

The key factors that have renewed doubts in the minds of investors are an unceasing decline in oil prices, which has raised questions about the health of the global economy, and persistent anxiety on Wall Street regarding the health of the Chinese economy, the world’s second largest.

Recent data indicate that auto sales in China dropped 12% in October to 2.38 million, from a year ago, and Chinese policy makers announced new bank lending rules in an attempt to manage concerns about its equity market and an economic slowdown.

U.S. crude-oil prices settled in bear-market territory on Thursday, defined as a drop of at least 20% from a recent peak, and that decline may invite questions about the health of demand and the vitality of economies around the globe. Along with other key commodities, oil has often been used as a gauge of world-wide vitality.

What are strategists saying?

Willie Delwiche, investment strategist at R.W. Baird, said in an interview with MarketWatch that the oil’s bear market could be spooking investors. “Oil being down could be a sign that the global economy is in a tough spot,” he said.

“The initial reaction to lower oil prices has been that they’ll be a boon for the middle class,” Delwiche said, arguing that this view could be mistaken given that consumer confidence doesn’t have much more room to grow, and because a smaller share of the American consumer’s budget goes to gasoline than it has in the past. “That’s a new reality that has to be reckoned with, and if this is a replay of the [oil price crash] of 2015 and 2016, it could have a meaningful impact on U.S. investment and earnings.”

As earnings season comes to an end, macro issues will dominate investor thinking for the rest of the year, Aaron Clark, portfolio manager at GW&K Investment Management, told MarketWatch. “The knee-jerk reaction to the election results was that we got the all clear,” he said.

“But we’re not out of the woods yet,” as issues like Italy-EU budget negotiations, slowing global growth, and rising U.S.-China trade tensions have not been resolved, and could loom over the market for months to come. “Investors are walking on eggshells, waiting for the next shoe to drop,” Clark said.

Which stocks are in focus?

Shares of the Walt Disney CoDIS, +1.97% were in focus after the entertainment behemoth late Thursday reported fourth-quarter earnings that beat expectations. Profit for the latest quarter rose to $2.32 billion, or $1.55 a share, up from $1.75 billion, or $1.13 a share, in the year-earlier quarter. The stock is up 2.2% Friday.

Shares of General Electric GE, -8.13% were sinking more than 9%, after JPMorgan Chase downgraded the outlook for the conglomerate’s stock.

Proctor and Gamble CoPG, +0.47% stock was in focus Friday, after the firm announced a reorganization, shrinking the number of business units from 10 to six and streamlining its management structure. The stock is up 0.5% at the start of trade Friday.

Yelp IncYELP, -28.46% stock was tumbling 28% Friday, after the companymissed Wall Street sales targets and lowered fourth-quarter guidance, in a Thursday evening release.

Dropbox Inc.’s shares DBX, +5.42%  were up 6.2% midday Friday, after the cloud-storage company reported more cash from each user and grew its paying-customer base in the third quarter, according to a Thursday earnings report, as the company continued to narrow its losses and grow sales faster than Wall Street’s expectations.

Activision Blizzard IncATVI, -9.75% shares are taking a hit Friday, down 10.8%, after the company reported third-quarter profits below Wall Street estimates.

Shares of Skyworks Solutions IncSWKS, -7.66% are 6.9% lower, after the semiconductor company issued disappointing guidance for fiscal first quarter of 2019.

CenturyLink IncCTL, -10.82% stock is off 9.3% after a Thursday-evening earnings report that showed revenue and profits falling faster than expected.

What data are ahead?

The producer-price index for October rose 0.6%, versus the consensus estimate of 0.2%, according to a MarketWatch poll of economists. Excluding volatile food and energy prices, producer prices increased by 0.5%.

The University of Michigan’s consumer-sentiment index fell slightly to 98.3 in November from 98.6 in October, in line with expectations of economists polled by MarketWatch.

How were other markets trading?

China’s Shanghai Composite Index SHCOMP, -1.39%  fell 1.4% on Friday, the small-capitalization Shenzhen Composite Index 399106, -0.43%  ended the session off 0.4%. Meanwhile, Japan’s Nikkei NIK, -1.05% declined 1.1%. European stocks were broadly lower Friday, with the Stoxx Europe 600 SXXP, -0.37% off 0.4%.

The 10-year Treasury note yield was down four basis points at 3.189%, , while gold GCZ8, -1.29% continued to extend a recent slide, down 1.1% at 1,211.10 an ounce, and those for U.S. benchmark oil CLZ8, -1.07%  was down 1.2% at $59.93 a barrel, below the key $60 psychological level, while the dollar, measured by the ICE U.S. Dollar Index DXY, +0.31% held steady.

The SPDR Dow Jones Industrial Average ETF Trust (DIA) was trading at $259.63 per share on Friday afternoon, down $2.47 (-0.94%). Year-to-date, DIA has gained 5.83%, versus a 4.25% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 82 ETFs in the Large Cap Value ETFs category.

This article is brought to you courtesy of MarketWatch.

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