Published 9:58 AM EST Dec 6, 2018
U.S. stocks suffered a steep drop at the start of trading Thursday as jittery investors react to the arrest of a top Chinese tech executive and monitor a key OPEC meeting amid a continuing swoon in oil prices.
Investors hoping for stability after the Dow Jones Industrial Average’s nearly 800-point fall on Tuesday, instead saw the blue chip average in early trading retreat another 500 points, or 2 percent, and give up its gains for the year.
The sell-off, which began earlier this week amid a signal from the bond market that a possible economic slowdown is coming and rising skepticism about the outcome of this past weekend’s trade war cease-fire between the U.S. and China, looks set to continue. The expected slide on Wall Street follows weakness overseas, where stocks slid 2.5 percent in Europe, 2 percent in Japan, and fell 2.5 percent in Hong Kong.
The arrest of Meng Wanzhou, the chief financial officer and founder’s daughter at Huawei, China’s largest telecommunications equipment maker, has raised fears that it will harm the tentative trade truce between the world’s two largest economies.
“Traders have quickly moved out of riskier assets reflecting nerves that the arrest is likely to escalate tensions between the U.S. and China once again,” Jasper Lawler, head of research at London Capital Group, told USA TODAY via email.
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Wall Street is closely watching an OPEC oil meeting today, where the cartel is considering a cut in daily production to help stabilize oil prices, which have fallen sharply in recent weeks. The size and timing of the cut will likely determine if the agreement is enough to stem the fall in crude prices.
U.S.-produced crude was down 3 percent Tuesday at $51.38 per barrel, about one-third lower than its recent high of $76 per barrel in early October. Lower oil prices hurts the earnings of U.S. energy companies, which drags their stock prices down.
U.S. financial markets reopen today after shuttering Wednesday for the funeral services of late U.S. President George. H.W. Bush.
Heading into today’s session, the technology-stock packed Nasdaq composite is down nearly 12 percent from its late-August peak, putting it deeply into so-called “correction” territory, defined as a drop of 10 percent or more from a prior high. The Dow is 6.7 percent off its record close and the broad Standard & Poor’s 500 is 7.9 percent below its peak. The S&P 500 has already suffered two corrections this year, one in February and another in late November.
The ongoing trade dispute worries again caused Dow stocks with big exposure to China to fall sharply early Thursday. Apple shares fell 2.5 percent to a six-month low of $172.34, while heavy-equipment maker Caterpillar was down nearly 3 percent and airplane maker Boeing 3.5 percent lower.
Tuesday’s swift, steep price drop caught Wall Street off guard. It followed a six-day rally of more than 1,500 points for the Dow that was driven by a speech by Federal Reserve chief Jerome Powell that suggested the central bank would slow its interest rate hikes next year, as well as initial optimism over the U.S.-Sino trade truce.
But those good vibes quickly evaporated. Tuesday’s selloff was the “first hint of a ‘sell what you can’ type market,” said Chris Verrone of New York research firm Strategas Research Partners. The firm’s clients, he added, have been asking whether Tuesday’s big downdraft signaled investor “capitulation.”
Normally, markets don’t put in lows until there’s a large spike in fear and all the investors who want to get out do so.
For now, Verrone isn’t sure the selling has been exhausted.
“Deeper oversold conditions are often needed, and more convincing (rallies), are necessary to flip the tone of the (market),” he noted in a report. “For us, this remains a day by day assessment.”
Market volatility and wild price swings have returned with a vengeance to Wall Street this year. The broad Standard & Poor’s 500 stock index has moved up or down more than 2 percent on 14 trading days this year, the most in seven years, according data from S&P Dow Jones Indices.
“The failed rally isn’t a good sign heading into the rest of the year,” the U.S. Investment Policy Committee at CFRA, a Wall Street research firm, concluded in a report.