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Wall St. Tumbles, Bothered by the Fed and Government Shutdown Fears Wall St. Tumbles, Bothered by the Fed and Government Shutdown Fears
(about 2 hours later)
Stocks extended their run of losses Thursday, as investors continued to react with disappointment to the Federal Reserve’s outlook on interest rate increases, and new worries spread out from Washington about a possible Christmastime government shutdown. Stocks tumbled yet again on Thursday, a day after the Federal Reserve pushed forward with another interest-rate increase and offered no signs that it would moderate the pace of monetary tightening as many had hoped.
On Wall Street, the S&P 500 was down sharply in early afternoon trading, adding to a decline that has wiped more than 9 percent off the benchmark just this month. The S&P 500-stock index declined 1.6 percent, and the Dow Jones industrial index fell 2 percent. The tech-heavy Nasdaq composite fell 1.6 percent, pushing it 19.5 percent below its late-August peak. A decline of 20 percent marks the official start of a bear market. The S&P 500 itself is down more than 15 percent from its peak, within spitting distance of entering a bear market and ending the long bull rally that began in early 2009.
On Wednesday, the Federal Reserve raised its benchmark interest rate a quarter-point and indicated that more rate raises might come in the new year, a sign of measured confidence in the economy. Investors had been looking for Fed policymakers to indicate a moderating pace of monetary tightening because of growing concern about the economic outlook. “There’s just a constant selling pressure,” said Paul Hickey, co-founder of Bespoke Investment Group, a financial market research firm in Harrison, N.Y. “It’s just any excuse is an excuse to sell.”
Investors were also wary of a government shutdown, and the decline in stocks Thursday accelerated as President Trump suggested on Twitter that he was unhappy with a stopgap spending plan because it did not contain money for a border wall. On Thursday, investors had their pick of excuses.
Technology stocks, which have been hard hit by several concerns — from worries about what a trade war between the United States and China means for their supply chains, to expectations that profit growth will slow — slid. The Nasdaq composite was close to entering bear market territory, which is defined as a 20 percent drop from its peak. Among large technology companies, Apple, Amazon and Netflix were all down more than 3 percent. Tensions between the United States and China resurfaced as the Justice Department unveiled new indictments of Chinese nationals accused of hacking American government and corporate targets on behalf of Chinese intelligence agencies.
Energy stocks also fared poorly as oil prices returned to their lows for the year. Exxon Mobil was down more than 3 percent and Anadarko Petroleum fell more than 5 percent. Shares of technology companies, increasingly the epicenter of the confrontation between China and the United States over trade, security and technology, fell sharply. Among large tech companies, Apple, Amazon and Microsoft were all down more than 2 percent.
Steven Mnuchin, the Treasury secretary, said on Thursday that the reaction of markets to the Federal Reserve is “completely overblown” and American stocks continue to be a “tremendous value.” Elsewhere, President Trump again raised the specter of a federal government shutdown if he doesn’t receive funding for his promised border wall.
Mr. Mnuchin, in an interview on the Fox Business Network, blamed the advent of computerized trading for creating more dramatic swings in the stock market and argued that the United States continues to be a good investment opportunity. He said he remained optimistic that economic growth can top 3 percent next year. And crude oil extended its slump, sending energy stocks sharply lower. The S&P energy sector led the declines in the S&P 500, with the energy giants Exxon Mobil and Chevron dropping 3.1 percent and 2.7 percent.
The Treasury secretary also pointed out that inflation projections remain low, and that some members of the Federal Reserve indicated they do not see the need for additional interest rate hikes next year. American benchmark crude oil prices tumbled 4 percent more, pushing the price of a barrel of West Texas Intermediate crude to nearly $46 a barrel.
“If we have low inflation, continue to have low inflation, I think you’re going to see a different situation,” Mr. Mnuchin said. Initially, the sharp slump in crude oil prices — they’re down more than 23 percent this year — was seen as a result of a global supply glut that was expected to be transitory. But as the sell-off has persisted, the decline has raised questions among investors about the strength of global economic demand.
On Thursday, the Bank of Japan also fueled investors’ negative mood by maintaining its monetary policy, despite hopes that it too would offer some form of help for an economy contending with a slowing global outlook. “When prices move in a sustained way it’s telling you something about demand,” said Julia Coronado, president of MacroPolicy Advisors, an economic consulting firm.
The Bank of England then announced it would keep its benchmark interest rate steady at 0.75 percent, and noted that concerns over Brexit are increasingly weighing on the British economy. The global economy does appear to be slowing. Official figures in China, the world’s second-largest economy, show it is growing at the slowest pace in a decade. The world’s No. 3 and 4 economies, Japan and Germany, both contracted during the third quarter.
In Britain, the FTSE 100 closed 0.8 percent lower. In France, the CAC 40 lost 1.8 percent, and Germany’s DAX fell 1.4 percent. At the same time, the United States, the world’s largest economy, enjoyed one of its strongest years of economic growth since 2005. That was due in part to a jolt of fiscal stimulus in the form of a deep cut to corporate tax rates.
Shares in Japan led the decline in Asia, with the Nikkei 225 index down 2.8 percent after the Japanese central bank’s comments. Another closely watched Japanese stock index, the Topix, fell into bear market territory. But for financial markets, which tend to be forward-looking, the books are already closed on 2018. And asset prices are painting a much more dour picture of the economic outlook.
The S&P 500 is now down nearly 16 percent from its Sept. 20 peak, as investors have grown increasingly uncertain about the outlook for the economy and corporate profits.
Many had hoped that the right mutterings from the Federal Reserve as part of Wednesday’s decision on interest rates could offer a lifeline to a market rally that began in the economic wreckage of the financial crisis in March 2009.
By some measures, that bull market is the longest on record, having pulled the stock market up more than 250 percent.
“Everything points to the Fed needing to stop,” said Barry Bannister, chief equity strategist at the brokerage and investment banking firm Stifel Nicolaus in Baltimore. “And until they do. It’s kind of hard to put a floor under stocks.”