Dow Industrials lose 464 points; S&P 500 also retreats as Fed sends ripples through markets
By Jessica Menton
Updated Dec. 20, 2018 5:48 p.m. ET
U.S. stocks tumbled Thursday with the Nasdaq Composite Index teetering on the edge of a bear market as worries mounted about a possible government shutdown and the Federal Reserve’s latest guidance on interest rates.
The fourth quarter’s continuing stock-market rout has pulled all three major U.S. indexes deeper into the red for the year. The Dow Jones Industrial Average and the S&P 500 have slumped nearly 8%, while the tech-focused Nasdaq is down 5.4%. Six of the 11 sectors in the S&P have suffered double-digit losses for 2018, and a relentless slump in commodity prices has pushed oil to a 17-month low.
In another potentially troubling sign, trading volumes picked up significantly Thursday, with 11.79 billion shares changing hands on exchanges operated by the New York Stock Exchange and Nasdaq. That is the third-highest-volume day of the year and marks a reversal from earlier in the month when some investors argued low volumes suggested a lack of conviction in the selloff.
“We’re seeing all types of selling; it’s not necessarily panic selling, but it’s steady,” said R.J. Grant, director of equity trading at KBW Inc.
The market tumult is playing out as the multiyear era of loose monetary policies and massive bond buying from the world’s biggest central banks begins to wind down. Central banks had been credited with fueling the yearslong rally in global stocks and damping volatility.
Stocks around the world have tumbled, too, amid flaring trade tensions between the U.S. and China and a slowdown in growth. Technology stocks, in particular, have been battered on signs of slowing revenue growth.
U.S.-China tensions, plus worries about economic growth and the tech sector, spell more volatility ahead for investors. Photo Composite: Crystal Tai
The Nasdaq declined 108.42 points, or 1.6%, to 6528.41 and in intraday trading fell more than 20% from its Aug. 29 high. The index would be the first of the major three U.S. stock benchmarks to end a bull-market run that kicked off in wake of the financial crisis in March 2009, if were to close at or below 6487.75.
The Dow industrials ended lower by 464.06 points, or 2%, to 22859.60 after earlier falling as much as 679 points, while the S&P 500 fell 39.54 points, or 1.6%, to 2467.42. The indexes are trading at their lowest levels since fall 2017.
All three indexes are on course to close lower for the third straight week. Stocks are on pace to end this week with losses of at least 5%, which would mark their largest weekly decline since March. Thursday’s decline followed the Fed’s meeting the previous day in which it again raised rates by a quarter of a percentage point.
“The blame is being put on the Fed, but they’re not the cause of this,” said Peter Cardillo, chief market economist at Spartan Capital. “This market is worried about an earnings recession because of the trade war and the fears of the trade war impacting global growth.”
Global indexes; a bear market is often defined as a 20% decline from a peak, based on the market close. It takes another 20% move in the opposite direction to change the status.
Note: The peak is the highest level an index reached the most recent time it rose 20% or more from a trough.
Sources: Refinitiv; Dow Jones Market Data
Graphic by Pat Minczeski
The Fed’s rate increase Wednesday was widely expected and Chairman Jerome Powell firmly embraced central-bank officials’ projection of two more raises in 2019, down from three. But Mr. Powell cited strong U.S. economic data as justification for letting Fed holdings of bonds run off as planned.
That did little to narrow the divergence in views between the central bank and equity markets on whether global economic growth is slowing.
Despite signals such as a flattening yield curve, few economists are predicting a recession next year. Gross domestic product—a measure of how much the U.S. produces in goods and services—grew at a 3.5% annual rate in the third quarter, the Commerce Department said last month. Investors will get a fresh look at the data when the government releases its third revision to the report on Friday.
“This doesn’t make sense,” said Justin Wiggs, managing director in equity trading at Stifel Nicolaus, referring to recession-related fears. “It’s inherently impossible. This would have to be the highest-growth recession in the history of civilization.”
Ten of the 11 sectors in the S&P 500 slumped Thursday, led by losses in technology, consumer-discretionary and energy shares, which shed more than 1.5%. The defensive-oriented utilities sector rose 0.3%.
Adding to the anxiety in markets were doubts over whether President Trump and Republicans in Congress can avoid a partial government shutdown this weekend. House Republicans rebelled Thursday against extending the government’s funding into February without securing money for the border wall.
Stocks tend to take government shutdowns in stride, said Ryan Detrick, senior market strategist at LPL Research. Shutdowns have corresponded with a flat median return in the previous 20 shutdowns going back more than 40 years, LPL Research data showed.
Despite the market volatility, Charlie Smith, founding partner and chief investment officer at Fort Pitt Capital Group, has been adding exposure to Intel and Boeing , both of which have been sensitive to trade tensions, this month.
We’ve been living on this morphine drip that is now being taken away,” he said, referring to the low interest-rate environment over the past decade. “This reality is a whole lot better for the average Joe in the economy who now has a better chance of getting a job, but it may be a little more painful for the typical stock market investor.”
Jon Cheigh, portfolio manager at Cohen & Steers, has been advising clients to own data-center REITs or cell-tower REITs as a way to ride out the market volatility in the technology space. He said he also sees opportunities in real-estate sector, particularly the U.S. residential rental market.
“As interest rates have moved up, we’ve seen home buying go down,” Mr. Cheigh said. “It may not be a positive if you’re trying to sell a home, but if you’re trying to rent out an apartment, that’s good news.”
Write to Jessica Menton at Jessica.Menton@wsj.com
Appeared in the December 21, 2018, print edition as ‘Stocks Extend Decline As Anxiety Heightens.’