Wall Street’s major indexes all slid more than 2 per cent on Monday, with the benchmark S&P 500 closing at its lowest level in 14 months, on concerns of slowing economic growth ahead of a highly-anticipated decision from the Federal Reserve this week on the course of interest-rate hikes. The TSX slid to a two-year low.
The S&P 500 hit its lowest level since October 2017 to breach lows reached during its sell-off in February. The small-cap Russell 2000 index confirmed a bear market, having fallen more than 20 per cent from its Aug. 31 closing high.
A profit warning from British retailer ASOS raised concerns about weakening consumer strength, despite robust U.S. retail sales data on Friday. The National Association of Home Builders Housing Market Index indicated homebuilder sentiment had fallen to a three-and-a-half-year low.
The S&P 500 briefly erased its losses in late morning trade, but the index resumed its steep decline after Jeffrey Gundlach, chief executive of DoubleLine Capital, said that U.S. stocks were in a bear market.
Concerns about flagging consumer sentiment pushed down S&P 500 consumer discretionary stocks, which tumbled 2.8 per cent. Shares of Amazon.com Inc dropped 4.5 per cent, creating the biggest drag on the S&P 500 and the Nasdaq. Retail stocks declined overall, with the S&P 500 Retailing Index falling 3.4 per cent.
Investors said market skittishness was likely to persist heading into the Federal Open Market Committee meeting on Tuesday and Wednesday.
An indication that the Fed would slow its pace of interest-rate hikes could calm markets, but the central bank’s intentions remain unclear, said Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.
“We’re all holding our breath for the Fed,” Detrick said. “If the Fed takes its foot off the pedal for the first half of next year, that would get rid of one uncertainty.”
The Dow Jones Industrial Average fell 507.53 points, or 2.11 per cent, to 23,592.98, the S&P 500 lost 54.01 points, or 2.08 per cent, to 2,545.94 and the Nasdaq Composite dropped 156.93 points, or 2.27 per cent, to 6,753.73.
Canada’s main stock index also fell on Monday, as investors turned cautious ahead of the U.S. Federal Reserve’s monetary policy guidance and concerns over slowing global growth.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially down 232.42 points, or 1.59 per cent, at 14,362.65. That’s a fresh two-year low.
All of the index’s 11 major sectors were lower, led by a 4.5-per-cent drop in health care stocks as marijuana producers dropped.
Aurora Cannabis Inc. lost 5.5 per cent, while Canopy Growth Corp dipped 5.3 per cent.
The utility sector was down 1.8 per cent as Brookfield Infrastructure Partners LP fell 3.8 per cent. Boralex Inc. and AltaGas Ltd. lost 3.7 per cent and 2.7 per cent, respectively.
The financial sector slipped 1.4 per cent, while the industrial sector fell 1.8 per cent.
Tech stocks lost 2.8 per cent as Shopify Inc. sat down 7.4 per cent.
Leading the index were Pretium Resources Inc., up 10.6 per cent, Eldorado Gold Corp., up 10.3 per cent, and Yamana Gold Inc., higher by 8.8 per cent.
Lagging shares were Tamarack Valley Energy Ltd., down 10.4 per cent and Cascades Inc., lower by 7.2 per cent.
The Cboe Volatility Index, the most widely followed gauge of expected near-term gyrations for the S&P 500, finished up 2.89 points at 24.52, its highest close in seven weeks.
Shares of insurer UnitedHealth Group Inc fell 2.6 per cent after a federal judge late on Friday ruled that the Affordable Care Act, commonly known as Obamacare, was unconstitutional. UnitedHealth was the biggest drag on the Dow.
Johnson & Johnson shares fell for a second consecutive session following a Reuters report that the company knew for decades that its baby powder contained asbestos. J&J shares ended 2.9 per cent lower.
Shares of Goldman Sachs Group Inc dropped 2.8 per cent to a two-year low after Malaysia filed criminal charges against the bank in connection with an investigation into suspected corruption and money laundering involving the sovereign wealth fund 1MDB. The stock has the biggest year-to-date percentage decline among Dow components.
Twitter Inc shares slid 6.8 perc ent after the social media company warned of suspicious traffic from China and Saudi Arabia and disclosed an issue that could have revealed the country code of its users’ phone numbers.
In Europe, benchmark indexes from London and Milan to Paris and Frankfurt have lost between 10 per cent and 17 per cent so far this year.
Some investors had hoped for a bounce back before the holidays, but any “Santa Claus rally” has proven elusive so far. Since 1950, Wall Street has rallied by an average of 1.3 per cent during the last five trading days of December, according to the Stock Trader’s Almanac.
“Some investors whom we have spoken to had positioned themselves for a December rally and the path has been painful,” broker Bernstein said in a research note.
The Federal Reserve is widely expected to raise U.S. interest rates again at the end of its two-day meeting on Wednesday, but what matters more for investors will be whether it cuts its guidance on rate increases in 2019.
The U.S. central bank now projects three more increases before 2020, but recent weak data and worries over Washington’s protectionist policies have fueled expectations the central bank will cut its guidance.
In China, where the economy has been losing momentum, investors will look to a speech by President Xi Jinping on Tuesday marking the 40th anniversary of China’s “reform and opening” policy.
China is also expected to hold its annual Central Economic Work Conference later this week, where key growth targets and policy goals for 2019 will be discussed.
The top decision-making body of the Communist Party, the Politburo, said last week that China will keep its economic growth within a reasonable range next year, striving to support jobs, trade and investment while pushing reforms and curbing risks.
In foreign exchange markets, moves were moderate. The dollar paused near 18-month highs before the Fed meeting, after it gained from a rush into safe-haven assets due to the economic outlook.
The dollar index fell 0.31 percent, with the euro up 0.33 per cent to $1.1344.
U.S. benchmark 10-year Treasury notes last rose 8/32 in price to yield 2.8606 per cent, from 2.889 per cent late on Friday.
Oil prices fell more than 2 per cent on Monday, with U.S. crude hitting the lowest since September 2017, on signs of oversupply in the United States and as investor sentiment remained under pressure from concern over global economic growth and fuel demand.
Brent crude oil fell 67 cents, or 1.11 per cent, to settle at $59.61 a barrel after dropping to a session low of $58.83 a barrel. U.S. crude dropped $1.32, or 2.58 per cent to end the session at $49.88 a barrel and tumbled to a low of $49.09 a barrel.
U.S. crude futures fell after inventories at the storage hub of Cushing, Oklahoma rose by more than 1 million barrels from Dec. 11-14, traders said, citing data from market intelligence firm Genscape.
Traders and market participants closely watch supplies at the hub because it is the delivery point for the futures contract and underpins nearly all other regional crude grades.
“The Cushing number came in higher than anticipated. ... It’s definitely pointing to the concern that there’s more supply and demand is weakening,” said Phil Flynn, analyst at Price Futures Group in Chicago.
“A lot of the shale producers can’t make money where prices are right now let alone below $50, so we’re going to see a cutback in some of the production estimates, but it takes time for that to happen .... right now we’re definitely following the continued weakness in momentum.”