A big drop in China’s stock market underscored simmering worries about the possibility of emerging-market troubles spreading to other regions as well as the impact of U.S.-China trade tensions on the global economy.
How did the benchmarks fare?
The Dow Jones Industrial Average DJIA, -1.27% dropped 327.23 points, or 1.3%, to end at 25,379.45 and the S&P 500 index SPX, -1.44% shed 40.43 points, or 1.4%, to 2,768.78. The Nasdaq Composite Index COMP, -2.06% slid 157.56 points, or 2.1%, to 7,485.14.
What drove the market?
Chinese stock markets touched a fresh four-year low and a seemingly hawkish Fed has combined to undercut investor sentiment.
The minutes of the Fed’s September meeting, released on Wednesday, indicated that policy makers are prepared to forge ahead with increases and will likely hike rates again as early as December, as expected. Tightening policy comes as no surprise but it does elevate concerns about increasing borrowing costs and the impact that could have on equity prices, market participants say.
Last week’s downdraft in stocks was attributed partly to a jump in yields of U.S. government bonds, which can also dampen appetite for stocks against so-called risk-free Treasurys. Rate hikes are expected to drive yields higher still.
Concerns about the vitality of Asian markets, in particular China’s, may also be weighing on the investment mood. Shanghai’s composite index SHCOMP, +2.58% fell 2.9% and the Shenzhen A-Share 399106, +2.58% dropped 2.7%. Weakness in Beijing’s markets came after China’s currency, the yuan, briefly touched its weakest level since January of 2017. One buck last fetched 6.9379 yuan USDCNY, -0.1168% up 0.2%. Those currency moves came after Treasury refrained from labeling China a currency manipulator in its biannual report on currency practices released late Wednesday.
The U.S. and China have been locked in a trade spat that doesn’t show signs of easing and that threatens to produce intermittent headwinds for markets.
Which data were in focus?
First-time jobless claims fell by 5,000 from a week ago, as the Labor Department reported just 210,000 Americans applying for initial jobless benefits in the week ending Oct. 13, in line with economist estimates.
The Philadelphia Fed manufacturing index came in slightly below last month’s reading, with a print of 22.2 in October, compared with 22.9 in September. Still, the figures were above expectations and indicate healthy activity in the factory sector.
The Conference Board said its leading economic indicators rose 0.5% in September.
What were strategists saying?
That stocks entered October, a notorious month for volatility, overbought and with much of the good news on earnings already baked in are all contributing factors for the market’s weakness, said Bruce Bittles, chief investment strategist at Baird.
”Technically, we have been pointing out that stocks were vulnerable as leadership was very narrow at the top with everyone owning FANG stocks either outright or through ETFs and mutual funds. Corrections are normal [and] so far this looks to be a correction that could carry further, setting up the possibility for a year-end rally later on,” he said. FANG is an acronym for popular tech stocks made up of Facebook Inc. FB, +0.44% Amazon.com Inc. AMZN, +0.35% Netflix Inc. NFLX, +0.66% and Google parent Alphabet Inc. GOOG, +0.46% GOOGL, -2.63%
Tom Essaye, president of the Sevens Report, pointed to weak export Japanese export data and a poor showing in the Chinese equities market as reason for softness in trading.
“Are any of those hugely negative events for U.S. equities? Probably not, but we need some good news for the market to turn higher,” he said. Essaye predicted that as earnings season heats up next week, that good news will be on the offing, “ But until we get a solid run of earnings growth and macro data, the stocks will move sideways, if not down.”
Jay Hatfield, CEO and portfolio manager Infrastructure Capital Management, blames recent weakness in stocks on “normal October stock market behavior,” that is a result of increased short interest and a decline in buybacks that typically occur in the lead-up to earnings season. “We are going to be range bound for the next week or so as we find the bottom,” he said.
Which stocks were in focus?
General Electric Co. GE, +1.56% shares climbed 1.6% in the wake of an FT report Wednesday that the conglomerate has won a $15 billion power-generation contract in Iraq.
United Rentals Inc. URI, -15.04% skidded 15% after the equipment-rental company beat Wall Street estimates for the quarter but said its outlook didn’t include a pending $2.1 billion acquisition.
Alcoa Corp. shares AA, +5.86% rallied 5.9% after the company reported better-than-expected earnings.
Invesco Ltd. IVZ, +1.53% rose 1.5%, after it announced the acquisition of OppenheimerFunds, a subsidiary of Massachusetts Mutual Life Insurance.
Endocyte Inc. shares ECYT, +50.39% soared 50% after Novartis AG NVS, +1.13% NOVN, +0.47% said it would buy the cancer-drug maker for $2.1 billion.
Shares of Travelers Cos. TRV, -1.03% fell 1% even as it posted earnings and revenue above analyst expectations.
How did other markets trade?
Asian stocks were weaker with China’s benchmarks hitting multiyear lows and European markets fell in line with the global retreat.
Crude-oil prices CLX8, +0.52% fell sharply, while gold prices GCZ8, +0.01% settled marginally higher and the U.S. dollar index DXY, -0.04% firmed.