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S&P and Dow Slide as Evidence of Global Slowdown Mounts Stocks Slide as Evidence of Trade War Driven Slowdown Mounts
(32 minutes later)
Stocks slid on Wednesday, a second day of selling that has shattered a relatively calm period for Wall Street, as investors faced new evidence that global growth is threatened by the trade war. Stocks slid on Wednesday, a second day of selling that has shattered a relatively calm period for Wall Street, as investors faced new evidence that the world’s industrial sector is weakening in the face of the trade war.
The S&P 500 was down about 2 percent and on track for its worst day since late August. The S&P 500 was down about 2 percent and on track for its worst day since late August. Stocks in Europe tumbled.
The selling this week began after a key measure of manufacturing activity showed that factory output in the United States had slowed to levels last seen at the end of the financial crisis a decade ago. The data was the latest indication that the conflict between Washington and Beijing is chipping away at the industrial base in the United States, after having already dented Japan and Germany. The selling this week began after a report on manufacturing activity showed that factory output in the United States slowed in September to levels last seen at the end of the financial crisis a decade ago. The data was fresh indication that the trade conflict between Washington and Beijing is chipping away at the industrial base in the United States, after having already dented factories in China, Japan and Germany.
Although both the United States and China had taken measures to calm trade-war tensions, including delaying some expected tariffs, investors are worried that little progress has been made toward a long-term resolution of the conflict. Representatives from the two countries are expected to restart talks later this month. Corporate reports on Wednesday, on auto sales and the airline sector, also contributed to the market’s dour mood.
“This is the markets unequivocally insisting that there be verifiable, material progress in next week’s trade talks between the U.S. and China,” said Julian Emanuel, chief equity and derivatives strategist at brokerage firm BTIG. “There’s no question that the global economy is slowing and that’s beginning to show up in U.S. data,” said Scott Clemons, chief investment strategist at private bank Brown Brothers Harriman.
Industrial companies and materials stocks — a category that includes chemical companies and fertilizer manufacturers — suffered the steepest drops by midday Wednesday. Airlines also fell sharply after Delta provided an updated forecast on third-quarter earnings that disappointed the market. The primary culprit for the economic slowdown is the trade war between the United States and China. On Tuesday, the World Trade Organization cut its forecast for growth in trade. Although both Washington and Beijing have taken measures to lower the tension between them, investors remain on edge, wary of the next downdraft, and eager to see a lasting breakthrough in the next round of talks between the two sides.
Weak auto-sales reports also contributed to the market’s dour mood. Ford and GM were both down almost 4 percent. “This is the markets unequivocally insisting that there be verifiable, material progress in next weeks trade talks between the U.S. and China,” said Julian Emanuel, chief equity and derivatives strategist at brokerage firm BTIG.
Large technology companies were also hard hit, with Apple and Microsoft, two of the biggest companies in the S&P 500 by market value, down more than 2 percent. Big tech producers have been particularly sensitive to developments in the standoff between the United States and China. On Wednesday, industrial companies and materials stocks — a category that includes chemical companies and fertilizer manufacturers — suffered some of the steepest drops.
The two-day decline has ended a quiet stretch for investors in the United States. The S&P 500 had not fallen 1 percent or more on any single day in September. Shares of airlines also fell sharply after Delta’s updated forecast on third-quarter earnings disappointed the market, and shares of automakers were down sharply after Toyota and Honda reported a steep decline in sales in the United States.
Selling began on Tuesday, after the Institute for Supply Management reported that its manufacturing index fell in September to its lowest level since June 2009. It was the second month of contraction for factory activity in the United States. Large technology companies weighed heavily on the market. Apple and Microsoft — the two largest companies in the S&P 500, by market value — fell more than 2 percent.
Also on Tuesday, the World Trade Organization cut its forecast for growth in trade. World trade in merchandise is expected to expand just 1.2 percent this year, in the weakest year since the heat of the financial crisis in 2009. Sudden outbreaks of economic panic have been a recurrent feature of the markets in the past year, part of a dynamic of worry and relief that has whipsawed investors repeatedly.
In December stocks plummeted 9 percent, before soaring almost 8 percent in January after the Federal Reserve indicated it would cut interest rates to offset potential economic damage from the trade fight. Similar swings took place in May and June.
October’s decline stands out in part because trading was remarkably muted in September. But growing evidence of economic damage tied to the trade war has pushed the issue to the forefront of investors’ minds once again.
While the United States is less exposed to trade wars than other large economies, it is not completely immune. Economists now expect that economic growth in the country will fall below 2 percent next year, according to estimates compiled by FactSet.
And whether that United States can generate even that lower level of growth hinges on whether consumer spending — which accounts for about two-thirds of economic activity — remains strong.
On Friday, the Labor Department will report on the monthly pace of hiring in the United States, and economists expect that report to show unemployment remained near a 50-year low in September. That could help calm investors’ nerves.
“That’s more people with more jobs and more money,” said Mr. Clemons. “And that’s 68 percent of the economic equation.”
In Europe, where manufacturing accounts for a larger share of economic output, the selling on Wednesday was sharper than in the United States. Britain’s FTSE 100 dropped more than 3 percent, its worst decline this year, while Germany’s Dax index dropped 2.8 percent.
Germany has become a point of concern for investors, with its factory orders dropping as Chinese companies, hit by tariffs on exports to the United States, purchase less German machinery.
At the same time, Britain remains enmeshed in negotiations over Brexit and faces huge uncertainty over its future trading relationship with Europe. Prime Minister Boris Johnson is set to unveil a new proposal on Wednesday for the terms of leaving the European Union at a Conservative Party conference, but there is still a risk that Britain will leave the bloc at the end of the month without a deal. Stocks had weakened slightly, in Asia but not to the same extent experienced in Europe
President Trump, who has a close eye on the stock market and has in the past touted its gains as a report card on his presidency, blamed the decline on an impeachment inquiry by Democrats. “All of this impeachment nonsense, which is going nowhere, is driving the Stock Market, and your 401K’s, down,” he wrote on twitter on Wednesday.President Trump, who has a close eye on the stock market and has in the past touted its gains as a report card on his presidency, blamed the decline on an impeachment inquiry by Democrats. “All of this impeachment nonsense, which is going nowhere, is driving the Stock Market, and your 401K’s, down,” he wrote on twitter on Wednesday.
But concerns about the economic outlook were apparent in other financial markets also. Yields on government bonds and crude oil prices, both of which are reactive to economic concerns, also fell.But concerns about the economic outlook were apparent in other financial markets also. Yields on government bonds and crude oil prices, both of which are reactive to economic concerns, also fell.
For investors, a number of opportunities to gauge the state of the economy lie ahead. On Friday, the Labor Department will report on the monthly pace of hiring in the United States in its highly watched jobs report. Ahead of that report, a private report on hiring, released by ADP, was slightly weaker than economists had forecast.
Companies will also soon begin to update investors on their businesses in quarterly earnings reports.
The selling on Wednesday was sharper in Europe, where London’s FTSE 100 dropped more than 3 percent. In Asia, stocks had weakened slightly, but not to the same extent experienced in Europe. Hong Kong’s Hang Seng Index closed down 0.19 percent, while the Nikkei 225 finished 0.49 percent lower.
In Europe, Germany has become a point of concern, with its factory orders dropping as Chinese companies, hit by tariffs on exports to the United States, purchase less German machinery.
At the same time, Britain remains enmeshed in negotiations over Brexit and faces huge uncertainty over its future trading relationship with Europe. Prime Minister Boris Johnson is set to unveil a new proposal on Wednesday for the terms of leaving the European Union at a Conservative Party conference, but there is still a risk that Britain will leave the bloc at the end of the month without a deal.