By Mark DeCambre, MarketWatch , Chris Matthews
Benchmarks off to worst December start since 2008
U.S. stocks closed sharply lower on Friday as a lack of concrete
progress toward reducing U.S-China trade tensions bolstered
risk-off sentiment and overshadowed the November employment
report.
Benchmarks
The Dow Jones Industrial Average fell 558.72 points, or 2.2%, to
close at 24,388.95, the S&P 500 index retreated 62.87 points,
or 2.3%, to 2,633.08, while the Nasdaq Composite Index slumped
219.01 points, or 3%, to finish at 6,969.25.
Ten of 11 sectors in the S&P 500 lost ground Friday, with
only utilities advancing, while all 30 components of the Dow traded
lower.
Check out:A death cross for the S&P 500 highlights a stock
market in tatters
(http://www.marketwatch.com/story/a-looming-death-cross-for-the-sp-500-highlights-a-stock-market-in-tatters-2018-12-06)
For the week, the Dow fell 4.5%, the S&P 500 retreated 4.6%,
and Nasdaq tumbled 4.9%. It was the biggest weekly percentage
decline for all three benchmarks since March, while also marking
the worst start to a December since 2008, according to Dow Jones
Market Data.
The slump pushed the S&P 500 and Dow back into negative
territory for 2018, while the Nasdaq is clinging to a 1%
year-to-date gain.
Market drivers
Concerns over global trade continue to weigh on investor
sentiment, even after a Friday morning report from the Labor
Department that showed healthy November job gains for the U.S.
economy and the fastest pace of wage growth in nearly 10 years.
Despite efforts by the Trump administration and its Chinese
counterparts to paint an optimistic picture of ongoing negotiations
aimed at reducing trade tensions, investors are demanding more
evidence that the two sides will avoid the imposition of new and
expanded tariffs in 2019, market participants say. Once again, a
pair of administration officials gave opposing views about those
negotiations in separate television appearances Friday.
The effect of trade concerns on the markets can be observed in
sector-by-sector performance figures, as retail trade took the
heaviest losses on Friday, down 6.5%, according to FactSet.
Read:Jobs report provides reason for Fed caution on interest
rates next year
(http://www.marketwatch.com/story/jobs-report-provides-reason-for-fed-caution-on-interest-rates-next-year-2018-12-07)
Retailers are particularly vulnerable to new tariffs, as
companies like Walmart Inc. (WMT) and Target Corp. (TGT) source
much of their merchandise from China. Walmart CEO Doug McMillon
told CNBC on Thursday
(http://www.marketwatch.com/story/walmart-ceo-warns-customers-might-pay-if-trade-tensions-escalate-2018-12-06)
that his company may soon have to raise prices if trade tensions
escalate.
Next week's vote on a deal covering Britain's exit from the
European Union as well as negotiations between Italy and the EU
over its budget deficit also contributed to the risk-off sentiment
investors.
This is despite a relatively strong jobs report, which showed
that the U.S. economy adding 155,000 new jobs in November
(http://www.marketwatch.com/story/us-gains-155000-jobs-in-november-and-unemployment-rate-stays-at-37-2018-12-07),
the Labor Department estimated Friday morning, somewhat below
expectations of 190,000 new jobs, according to a MarketWatch poll
of economists.
The jobs report also showed the unemployment rate holding steady
at 3.7%, as expected. Average hourly earnings grew 6 cents per hour
from October, or 0.2%, just shy of expectations, and grew by 3.1%
year-over-year, their highest rate since 2009.
Read:Softer-than-expected jobs report called uninspiring by
economists
(http://www.marketwatch.com/story/softer-than-expected-jobs-report-called-uninspiring-by-economists-2018-12-07)
The jobs numbers are of particular importance to investors, as
these data will inform The Federal Reserve's interest-rate-setting
committee, as it prepares to decide whether to raise interest rates
at its coming meeting Dec. 18-19.
Signs that the Federal Open Market Committee may take a less
aggressive tack in normalizing rates have increased, with The Wall
Street Journal on Thursday reporting that Fed officials are
considering a new wait-and-see mentality
(https://www.wsj.com/articles/restrained-inflation-reduces-urgency-for-quarterly-rate-increase-pattern-1544127856?mod=searchresults&page=1&pos=1)
at that December meeting. And nonvoter, St. Louis Fed President
James Bullard, said he would advocate delaying a rate hike later
this month, during an interview.
Read:Huawei arrest creates concerns in Silicon Valley as well as
abroad
(http://www.marketwatch.com/story/huawei-arrest-creates-concerns-in-silicon-valley-as-well-as-abroad-2018-12-06)
What investors and analysts say
"Today's is an exaggerated selloff," Vincent Juvyns, global
market strategist at J.P. Morgan Asset Management, told
MarketWatch. "But in the short term, there is just so much
uncertainty surrounding trade talks, Brexit and Italy," he
said.
"There's too much for investors to swallow at the moment,"
making it "not a good time to take bold risks," he said, adding
that his firm has recently increased its cash holdings in its
multi-asset funds, even as they remain long U.S. equities, to help
reduce risk and ride out this troubled patch in the markets.
"The jobs report threaded the needle really well," J.J. Kinahan,
chief market strategist with TD Ameritrade told MarketWatch,
arguing that new jobs in November were neither too high nor too low
for investors.
"Had the this come in really hot, the market would have
interpreted it as a number that would force the Fed to raise rates
not just in December, but in March too," he said. "You also didn't
want to miss in a huge way on the down side, as it would have
shaken faith in the economy," he said.
Steve Chiavarone, portfolio manager at Federated Investors, told
MarketWatch that while the jobs report was bullish, trade concerns
will continue to weigh on the market in the short term.
On this top of his list of concerns is a recent decline in capex
spending that he says "is absolutely related to trade."
"Companies can't plan their global supply chains, with so much
uncertainty over where policy is going, and if you can't plan, you
can't invest," Chiavarone said. This dynamic will hurt the U.S.
economy, productivity growth and equity values if China and the
U.S. cannot come to some agreement that provides certainty around
the new rules of trade.
Stocks in focus
Shares of Big Lots Inc.(BIG) traded down 23.1%, after a
wider-than-expected third-quarter loss.
Shares of Broadcom Inc. (AVGO) were in focus after the chip
maker announced fiscal fourth-quarter profits and sales Thursday
evening that topped Wall Street expectations. The stock rose 0.6%
Friday
Ulta Beauty Inc. (ULTA) shares slumped more than 13% Friday,
after a Thursday evening earnings release that predicted weaker
holiday sales that analysts hoped.
Shares of Altria Group (MO)were in focus after the company
announced it would take a 45% ownership stake in the cannabis-firm
Cronos Group Inc. (CRON.T), worth $1.8 billion. The stock fell
0.4%, while Cronos shares surged nearly 22% on the news.
The transportation sector was hit hard Friday, as oil prices
rose again
(http://www.marketwatch.com/story/oil-futures-end-higher-up-more-than-3-for-the-week-2018-12-07)
to cap a week where they climbed 3.3%. American Airlines Group Inc.
(AAL) stock fell 9.1%, while FedEx Corp.(FDX) stock tumbled 6.4%
Friday.
Data and Fed speakers
Other markets
Asian markets traded mostly higher Friday
(http://www.marketwatch.com/story/asian-markets-inch-forward-amid-us-china-friction-2018-12-06),
with the Nikkei 225 rising 0.8% and markets in South Korea and
Australia advancing on the day. The Shanghai Composite Index was
virtually flat, with gains of less than 0.1%.
European markets ended mostly higher Friday, with both the Stoxx
Europe 600 and the FTSE 100 in the green.
Crude oil rallied after OPEC and its allies agreed to a
production cut
(http://www.marketwatch.com/story/oil-prices-are-up-modestly-as-saudis-still-skeptical-of-opec-coalition-cuts-2018-12-07),
while gold advanced and the U.S. dollar edged lower
(http://www.marketwatch.com/story/dollar-traders-take-a-breath-before-jobs-report-2018-12-07).
(END) Dow Jones Newswires
December 10, 2018 13:37 ET (18:37 GMT)
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