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Wall Street Hits New 2018 Lows as Fed Decision Looms Over Markets Wall Street Hits New 2018 Lows as Fed Decision Looms Over Markets
(about 2 hours later)
Stocks on Wall Street fell on Monday to a new 2018 low, as investors braced for a Federal Reserve decision on interest rates this week and health care stocks were roiled by a court decision about the Affordable Care Act. Stocks on Wall Street notched a new low for the year on Monday, as worries about the economy continued to dog investors ahead of a crucial Federal Reserve decision on interest rates later this week.
The S&P 500-stock index ended down 2.1 percent, sinking below levels reached during a steep decline in February. The index is now down 4.8 percent for the year. It was the latest in a string of volatile trading sessions that has left investors limping through the last weeks of 2018. Since stocks reached a record high in September, the market has been buffeted by a range of concerns, from signs that the trade war between China and the United States is beginning to weigh on global growth to worries that higher interest rates will eat into corporate profits.
Should the market fail to rebound, the losses for 2018 could represent Wall Street’s worst year since the financial crisis a decade ago. It made for a shaky day in the markets. Crude oil dove. Corporate bonds were lower. Stocks dropped almost across the board, with shares of tech, health care and small companies as well as blue-chip corporations all lower.
The selling spared few sectors, with tech companies, the health care industry, small businesses and blue-chip corporations all falling after survey data suggested some softening in the United States’ outlook for growth. When the dust had cleared, the S&P 500 was down 2.1 and 4.8 percent for the year. Should the market fail to recover, 2018 would be Wall Street’s worst year since the financial crisis a decade ago.
In the commodities markets, prices for benchmark American crude oil fell close to 4 percent, tumbling below $50 a barrel. Investors moved to the safety of American Treasury bonds, pushing yields — which move in the opposite direction of prices — on the 10-year Treasury note down to 2.85 percent, the lowest level since early September. Typically, falling yields are associated with softening economic conditions. Borrowing costs in corporate bond markets rose, as investors shied away from risk. The sell-off came after another indication that the American economy, while still strong, is showing signs of slowing. The Empire State manufacturing index, a somewhat limited gauge of economic sentiment among manufacturers in New York State, tumbled sharply. A survey of American homebuilders also showed sentiment continuing to fall in an area of the economy where rising mortgage rates have hurt affordability and sales.
“Every part of the market has been acting like things are a lot slower,” said Ilya Feygin, managing director at the institutional brokerage firm WallachBeth. “Everywhere, every market is telling you the same thing.”“Every part of the market has been acting like things are a lot slower,” said Ilya Feygin, managing director at the institutional brokerage firm WallachBeth. “Everywhere, every market is telling you the same thing.”
This year’s sell-off is nothing like the collapse of stocks a decade ago, when the S&P fell more than 38 percent. But in its own way, 2018 is emerging as a remarkable year for financial markets, with almost every type of investment and asset class — stocks, bonds, commodities, even supersafe Treasurys — posting negative or minuscule returns. President Trump sent a Twitter message on Monday calling “incredible” the widespread expectation that the Federal Reserve will raise interest rates when it concludes its monetary policy meeting on Wednesday. Mr. Trump has repeatedly called on the Fed to stop a rate-increase cycle that started in December 2015.
Fed interest rate increases are traditionally viewed as a negative for stock prices, and as evidence mounted in recent weeks that the global economy was starting to slow, investors have increasingly attuned to comments about the Fed’s plans. Many financial market analysts date the start of sharp slump for stocks to comments from the Federal Reserve chairman, Jerome H. Powell, in early October that seemed to suggest that the central bank was intent on raising interest rates further than many had expected.
In late November, Mr. Powell sent stocks up sharply when he said the Fed’s benchmark interest rate was “just below” the neutral level, which many saw as a sign the central bank might not be as aggressive in raising rates as initially thought.
Most investors still expect the Fed to lift its key interest rate when the central bank concludes the two-day meeting on Wednesday, but expectations are growing that the central bank will somehow signal that it is aware that conditions in financial markets have deteriorated sharply, and could reflect real risks for the economy.
The Fed’s decision is likely to be one of the last major events for markets in what has been a difficult year for investors. If investors are disappointed by the Fed’s decision, the market slump could get worse.
“If monetary policy doesn’t change its direction, you will have a significant meltdown on this,” said Steven Ricchiuto, chief United States economist with Mizuho Securities. “So there’s a lot riding on it.”
The pain on Monday was not limited to stocks. In the commodities markets, prices for benchmark American crude oil fell close to 4 percent, tumbling below $50 a barrel.
[Read more about how investors have nowhere to go as stocks, bonds and commodities all tumble.][Read more about how investors have nowhere to go as stocks, bonds and commodities all tumble.]
Until recently, shares of health care companies had been something of an outlier against that backdrop. The S&P 500 health care sector had rallied after the November midterm elections as investors figured that threats to the Affordable Care Act would fade after the Democrats retook control of the House of Representatives. Investors moved to the safety of Treasury bonds, pushing yields — which move in the opposite direction of prices — on the 10-year Treasury note down to 2.85 percent, the lowest level since early September. Typically, falling yields are associated with softening economic conditions. Borrowing costs in corporate bond markets rose, as investors shied away from risk.
But on Monday, the sector was hit hard after a federal judge in Texas ruled the Affordable Care Act unconstitutional last week. While the decision, which will be appealed, does not immediately upend the law, it does raise new uncertainty for the companies that have established significant businesses structured around the law known as Obamacare. This year’s sell-off is nothing like the collapse of stocks a decade ago, when the S&P 500 fell more than 38 percent. But in its own way, 2018 is emerging as a remarkable year for financial markets, with almost every type of investment and asset class — stocks, bonds, commodities, even safe Treasuries — posting negative or minuscule returns.
Centene, an insurer based in St. Louis that has built a large business servicing government-funded Medicaid programs, fell 4.8 percent as trading volume surged. The hospital chain HCA also fell sharply, as any change to the law that resulted in lower levels of insurance would most likely result in higher costs for the hospitals. The S&P health care sector fell 2.1 percent. Until recently, shares of health care companies had been something of an outlier against that backdrop. The S&P 500 health care sector had rallied after the November midterm elections as investors figured that threats to the Affordable Care Act would fade after the Democrats retook control of the House.
Elsewhere, some data showed signs of a softening in the American economic outlook. The Empire State manufacturing index, a somewhat limited gauge of economic sentiment among manufacturers in New York State, tumbled sharply. A survey of American homebuilders also showed sentiment continuing to fall in an area of the economy where rising mortgage rates have hurt affordability and sales. But on Monday, the sector was hit hard after a federal judge in Texas ruled the Affordable Care Act unconstitutional last week. The decision, which will be appealed, does not immediately upend the law, but it does raise new uncertainty for the companies that have established significant businesses structured around the law known as Obamacare.
Such survey data is usually considered less solid than official government economic reports. But with the sell-off in shares suggesting an increasingly uncertain outlook for growth and corporate profits, many investors are focused on any economic update that confirms the worrisome signals being sent by stocks. Centene, an insurer based in St. Louis that has built a large business servicing government-funded Medicaid programs, fell 4.8 percent as trading volume surged. The hospital chain HCA also fell sharply, as any change to the law that resulted in lower levels of insurance would most likely result in higher costs for the hospitals. The S&P 500 health care sector fell 2.1 percent.
Amid the market slump, President Trump sent a Twitter message on Monday calling “incredible” the widespread expectation that the Federal Reserve will raise interest rates when it concludes its monetary policy meeting on Wednesday.
The Fed’s decision will most likely be one of the last major events for markets in what has been a befuddling year for investors.