The Dow Jones Industrial Average fell more than 130 points on the week’s first day of trading, with UnitedHealth and Goldman Sachs dragging the blue-chip index lower. The S&P 500 fell 0.4 percent amid a 1 percent loss in health care and a 1.1 percent decline in consumer discretionary.
The Dow is now more than 11 percent off its 52-week high; the S&P 500 is 12 percent off its record high notched back in September. The Cboe Volatility Index — one of Wall Street’s favorite gauges of market fear — hit a high of 23.79, its highest level since Dec. 10.
The tech-heavy Nasdaq Composite dropped 0.3 percent and turned negative for 2018 as Amazon fell more than 1.8 percent and Microsoft lost 0.9 percent. The Nasdaq Composite is also in a correction.
“With just ten trading sessions left for stocks in 2018 the chance of a Santa Claus rally appears less than slim,” John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, wrote Monday. “Sentiment remains sour toward stocks even as fundamentals and relatively cheap valuations leave stocks poised to move higher in the New Year.”
Recent economic data have reignited worries of economic slowdown around the globe and kept a lid on stock returns. The Dow fell nearly 500 points and the S&P 500 closed down 1.9 percent on Friday to 2,599.95 — its lowest closing level since April — after China reported industrial output and retail sales growth numbers for November that missed expectations.
Meanwhile, New York manufacturers reported on Monday that business activity is still expanding, but growth slower much more than expected in December. The Empire State Manufacturing Survey’s general business conditions index, aggregated by the Federal Reserve Bank of New York, fell to 10.9 from 23.3 in November, falling short the 20.6 print expected by economists polled by Refinitiv.
Homebuilder sentiment fell to its lowest level since May 2015 in December as potential buyers delay purchasing new homes despite a pullback in mortgage rates in the past month. Sentiment declined four points in December to 56, well below December 2017’s print of 74, according to the National Association of Home Builders/Wells Fargo Housing Market Index.
“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” said NAHB Chairman Randy Noel, a homebuilder from LaPlace, Louisiana. “However, recent declines in mortgage interest rates should help move the market forward in early 2019.”
The company is under fire for its role in helping raise $6.5 billion through three bond offerings for 1Malaysia Development Bhd (1MDB), which is the subject of investigations in at least six countries.
Electronics retailer Best Buy was on track for a rough day on Wall Street after Bank of America Merrill Lynch downgraded its stock to underperform on concerns of slowing sales.
BofA cited “deceleration in industry growth trends and continued caution on key product categories such as TVs, Apple products and gaming,” stated the Monday note by analyst Curtis Nagle. The downgrade — and worries of softer sales — comes during one of the most important times of the year for the consumer technology retailer as shopper flock to purchase holiday gifts.
Best Buy’s stock fell more than 2.3 percent.
Last week’s softer economic data from China offered yet another hint that Beijing’s economy may be decelerating amid rising trade risks as President Xi Jinping tries to broker a permanent truce with President Donald Trump. The two nations have slapped tariffs on billions of dollars worth of goods over the past year as disagreements over the handling of intellectual property and a yawning trade deficit remain unresolved.
The trade turbulence between the globe’s two largest economic powers has aggravated international market turmoil. In Europe, the German DAX, the FTSE 100 and the Stoxx 600 indexes are all more than 12 percent off their 52-week highs despite near-zero interest rates.
China’s Shanghai Composite is in a bear market as the index trades more than 25 percent off its own 52-week high.
“Progress in trade talks with China last week failed to spark a rally as the signal was drowned out by negative sentiment,” Stoltzfus added. “Last week China announced it would reduce tariffs on U.S.-built automobiles sold in China from 40 percent to 15 percent and that it would begin to buy corn and soy from the U.S. again. The equity market seemed once again to ignore these positive developments.”
Investors are also on edge ahead of the December meeting of the Federal Reserve’s policymaking arm. The Federal Open Market Committee is expected to hike its benchmark overnight lending rate for a fourth and final time of 2018 this week. While fears of rising interest rates and an ambitious Fed have spooked markets throughout 2018, such concerns have evolved over the past month as inflation and growth expectations recede.
“With increased stock market volatility and signs of slower growth overseas, there are increasing calls for the Fed to halt its rate increases,” wrote David Kelly, chief global strategist at JPMorgan Funds. “This is where the Fed needs to keep its head first, because current Fed policy is neither too aggressive nor too tight and second, because a change of course at this point could undermine confidence.”
For his part, President Trump doubled down on his criticism of the Fed’s rate hiking path on Monday, lambasting the central bank for “even considering” another rate hike just days before its final meeting of the year.
It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!
The so-called yield curve remains partially inverted, with the yield on benchmark 2-year Treasury notes exceeding the rate on 5-year notes. The recent fall in interest rates, as well as marked flattening in the yield curve, has pushed bank stocks lower, with the SDPR S&P Bank ETF down more than 20 percent in the past six months.