By Saumya Vaishampayan
Stock markets around the world tumbled, with the Dow industrials
falling to their lows of the year, and government bonds rallied
Wednesday as fears about the health of the global economy
deepened.
Investors have been concerned about softness in Europe, Japan
and China for months. And while U.S. growth has remained
buoyant--third-quarter gross domestic product expanded by 5%--it is
unclear whether it can withstand the drag from overseas. Slower
economic growth dims the prospects for corporate-profit growth, a
driver of stock-market gains.
Weaker-than-expected retail sales in December and disappointing
results from J.P. Morgan Chase & Co. dragged stocks down in the
U.S. Investors also eyed crude-oil prices, which were flat in
recent trade but have plunged since last summer.
The Dow Jones Industrial Average fell 300 points, or 1.7%, to
17314. The S&P 500 index lost 28 points, or 1.4%, to 1994. The
S&P is down 4.6% from its record high of 2090.57 set Dec. 29,
and up 8.4% from one year ago.
Traders said that despite the scope of the move, selling wasn't
extreme and concentrated among exchange traded funds--baskets of
stocks--rather than individual names. Longer-term investors, such
as mutual funds, were largely quiet, traders said, with short-term
players such as hedge funds dominating the selling.
Bill Nichols, head of U.S. equities at Cantor Fitzgerald, said
there was no sense of panic among investors selling stocks
Wednesday. He added that while volatility is heightened, it isn't
out of place in comparison with historical moves. "We kind of got
so used to muted volatility that when you see a 1% or 2% intraday
swing it stands out, but historically you saw more of those over
the years," he said.
Investors sought haven assets such as U.S. government bonds. The
yield on the 10-year Treasury note dropped to 1.819% from 1.890% on
Tuesday. On Wednesday, the yield on the 30-year bond hit as low as
2.375%, breaking 2.439% set in July 2012, which had been the lowest
intraday yield for the maturity on record. Yields fall as prices
rise.
Prices for copper, which is often viewed as a bellwether for
global growth, hit a 5 1/2-year low on Wednesday. Crude-oil futures
were nearly flat at $45.91 a barrel.
"When we see these big drops [in commodity prices] investors
start worrying about global demand, and therefore future global
growth," said Chris Gaffney, senior market strategist at EverBank
Wealth Management.
Market action has become more volatile in recent sessions, as
investors consider the pace of global growth, potential changes in
monetary policy at major central banks, and the fourth-quarter
earnings season. On Tuesday, the Dow industrials posted its biggest
intraday swing since October. The S&P 500 has had three moves
of 1% or more this January through Tuesday's close, compared with a
total of five such moves in January 2014.
The Nasdaq Composite declined 49 points, or 1.1%, to 4612.
All S&P 500 sectors were in negative territory. Financial
stocks on the S&P 500 fell 2.4% and growth-sensitive materials
stocks fell 2.4% as well. Energy stocks declined 2.3%.
Wayne Lin, a portfolio manager at QS Investors, which oversees
$21.6 billion, said he shifted to a more defensive positioning in
December. He is now overweight bonds and underweight stocks, a
decision driven in part because of the slump in oil prices.
"It's not that we think stock valuations are particularly
stretched or that we're headed into a bear market or that there's a
recession on the horizon," he said of the positioning change. "It's
simply because we think there's uncertainty and equities don't like
uncertainty," he added.
Many economists expect that the monthslong decline in fuel
prices should prompt consumers to spend more, a factor that could
propel the U.S. economy. But retail sales declined 0.9% in December
from a month earlier, the Commerce Department said Wednesday.
That marked the largest monthly decline since January 2014.
Spending fell 0.4% excluding gasoline sales, and declined 1% when
removing the volatile autos category. Economists surveyed by The
Wall Street Journal had predicted overall sales to fall 0.2% and
sales excluding autos to also fall 0.2%.
"The retail sales number was disappointing," said Michael Arone,
State Street Global Advisors' chief investment strategist. "It's
going to take a little time for the declines in oil to find their
way into spending," he said. He noted, however, that the data tend
to be choppy and often have significant revisions.
The firm has reduced some of its exposure to stocks recently,
though it remains overweight to stocks, including U.S. large-cap
stocks, Mr. Arone added.
The sales report came a day after the World Bank cut its outlook
for global growth in 2015.
In other commodity markets, gold futures added 0.2% to $1237.60
an ounce.
European stocks fell, pushing the Stoxx Europe 600 down 1.5%.
Mining stocks were hit hard. The 10-year German bond yield hit a
record low of 0.43% on Wednesday.
European stocks fell despite an opinion from an adviser to
Europe's top court that appeared to clear the way to a large-scale
program of bond purchases by the European Central Bank.
Among individual stocks, bank earnings stole the spotlight. J.P.
Morgan Chase & Co. said its fourth-quarter profit and revenue
fell as the firm faced high legal costs. Results missed Wall Street
expectations. Shares fell 5.4%.
Wells Fargo & Co. said fourth-quarter net income rose 1.8%
on the back of stronger loan growth. Shares fell 2.3% as a key
measure of lending profitability continued to tick lower.
Write to Saumya Vaishampayan at saumya.vaishampayan@wsj.com
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