Wall Street collapsed on Friday following investors’ concerns of an impending global economic slowdown. A series of weaker-than-expected economic reports from China and European Union raised eyebrows of several market participants. All three major stock indexes closed in the red. For the week also, these indexes ended in negative territory.
The Dow Jones Industrial Average (DJI) closed at 24,100.51, plunging 2% or 496.87 points. The S&P 500 Index (INX) shed 1.9% to close at 2,599.95. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,910.66, declining 2.3% or 159.67 points. A total of 7.89 billion shares were traded on Friday, lower than the last 20-session average of 7.97 billion shares. Decliners outnumbered advancers on the NYSE by 3.61-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 3.17-to-1 ratio. The CBOE VIX increased 4.7% to close at 21.63.
How Did the Benchmarks Perform?
The Dow ended in negative territory reversing its previous day’s gains. Friday’s closing was the blue-chip index’s lowest close since May 3. Notably, 28 components out of a total 30 components of the index closed in the red while just two finished in the green.
The S&P 500 also closed in negative territory for the second successive day, marking its lowest end since Apr 2. The Health Care Select Sector SPDR (XLV), Technology Select Sector SPDR (XLK) and Energy Select Sector SPDR (XLE) lost 3.4%, 2.5% and 2.3%, respectively. Notably, all 11 sectors of the benchmark index closed in the red.
The tech-heavy Nasdaq Composite closed in the red for the second straight day due to lackluster performance by large-cap tech giants. Friday’s closing was the index’s lowest close since Nov 20.
All three major indexes are currently in correction territory. Moreover, both the Dow and S&P 500 are in red year to date while Nasdaq Composite is still in green with a marginal gain of 0.1%.
Concerns Over Global Economic Slowdown
A series of economic data, recently released by Chinese authorities and several countries of the European Union have raised serious questions about an impending economic slowdown in these countries.
On Dec 14, National Bureau of Statistics of China reported that industrial output grew 5.4% year over year in November, its slowest pace in almost three years. Chinese retail sales rose 8.1% year over year in November, marking the weakest growth since 2003. Most economists think lingering trade related conflicts with the United States are the primary reason for slow pace of Chinese economic growth.
Meanwhile, the European Central Bank (ECB) has lowered its growth forecast for the European Union (EU) for both 2018 and 2019. The new growth rate for 2018 is now projected at 1.9% from 2% forecasted earlier. Similarly, 2019 growth rate is now pegged at 1.8% from 1.9% projected earlier.
Notably, this is the second time in past three months the ECB has lowered growth forecast for the EU. Brexit-related problems in the UK, fiscal indiscipline in Italy and ongoing economic slowdown in Germany and France are major concerns of the Eurozone countries.
On Dec 14, the Department of Commerce reported that U.S. retail sales grew 0.2% sequentially for the month of November. The figure was at par with the consensus estimate. Moreover, the metric for October was revised upwardly from a gain of 0.8% to 1.1%. Retail sales data for the first two months of the fourth quarter indicates strong growth potential for the U.S. economy in the ensuing quarter.
The Federal reported that U.S. industrial production rose 0.6% in November, marking its highest growth in three months. The figure also exceeded the consensus estimate of a gain of 0.3%. On a year over year basis, industrial production was up 3.9% in November. Notably, strong mining and utility data outweighed weak manufacturing productions.
Meanwhile, capacity utilization grew 0.4% to a metric of 78.5% in November, marginally below the consensus estimate of 78.6%. However, November data was far below the benchmark 80% level, which is needed to reduce per unit costs.
U.S. stocks had a tough time last week. All three major indexes – the Dow 30, S&P 500 and Nasdaq Composite – lost 1.2%, 1.9% and 0.8%.
Serious concerns over global economic growth due to lingering trade-tensions between the United States and China together with several geopolitical problems in the European Union weighed on stocks. Concerns about emerging markets and lack of clarity on much-hyped trade negotiations between the United States and China are other reasons for the poor performance of U.S. stocks.
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