Never before has Wall Street gotten off to a worse start to a year.
The stock market capped the first two weeks of 2016 with a steep slide Friday that sent the Dow Jones industrial average down nearly 400 points.
All three major stock indexes – the Dow, the Nasdaq composite index and the Standard & Poor’s 500 – are now in what’s known as a correction, or a drop of 10 per cent or more from their recent peaks.
The market has been on a stomach-churning ride since the start of the year, wrenched up – but mostly down – because of alarm over a slowdown in China and the plunging price of oil to its lowest level in 12 years. Investors are already seeing damage to U.S. corporate profits, particularly at energy companies.
The Dow slid 390.90 points, or 2.4 per cent, to 15,988.15 points. The average had been down more than 500 points early in the afternoon. The S&P 500 ended down 44.84 points, or 2.3 per cent, at 1,877. The Nasdaq dropped 126.59 points, or 2.7 per cent, to 4,488.42.
The Dow and S&P 500 have now fallen about 8 per cent this year, while the Nasdaq is off about 10 per cent.
“Oil is the root cause of today,” said Dan Farley, regional investment strategist at the Private Client Reserve at U.S. Bank. “People are uncertain, and when they’re uncertain they’re scared.”
Crude oil has dropped below $30 a barrel from a high of over $100 during the summer of 2014, eviscerating energy company profits. On Friday, Williams Cos. led a slide among oil, gas and mining companies, falling $2.19, or 12 per cent, to $16.10.
Investors also got some discouraging economic news on Friday: The Federal Reserve said U.S. industrial production, which includes manufacturing, mining and utilities, dropped in December for the third month in a row. And another government report indicated U.S. retail sales dipped last month.
Many investors had welcomed the new year with fairly high hopes. They expected oil prices would stabilize. After a market correction in August, few forecast it would happen again so soon. And the Federal Reserve’s move in December to raise interest rates for the first time in nearly 10 years signalled to many that the U.S. economy was healthy.
“The hope was global growth would stabilize, and early in 2016 here, that has been a disappointment, too,” said David Chalupnik, head of equities at Nuveen Asset Management.
Despite the rough start to the year, Wall Street watchers are not ready to say that the bull market is over.
“We don’t believe we’re going into a bear market,” Chalupnik said. “The reason for that is the U.S. economy is sound.”
Intel dropped 9.1 per cent after the chipmaker posted its fourth-quarter results, noting its personal computer business continues to slump. The stock was the biggest decliner in the Dow. It fell $2.98 to $29.76.
Benchmark U.S. crude fell $1.78, or 5.7 per cent, to $29.42 a barrel in New York. Brent crude, a benchmark for international oils, fell $1.94, or 6.3 per cent, to $28.94 a barrel in London.
Stocks opened higher in Europe but quickly fell. Germany’s DAX lost 2.5 per cent, while France’s CAC 40 dropped 2.4 per cent. Britain’s FTSE 100 fell 1.9 per cent.
In China, the Shanghai Composite Index slid 3.6 per cent to its lowest close in 13 months. China’s official Xinhua News Agency reported that new bank loans during the last month fell from a year earlier, another sign that the country’s economic growth is slowing from the torrid pace of the past few years.
Hong Kong’s Hang Seng dropped 1.5 per cent. Japan’s Nikkei 225 lost 0.5 per cent and South Korea’s Kospi 1.1 per cent.
In other energy trading, wholesale gasoline fell 5 cents to close at $1.02 a gallon, heating oil fell 5 cents to close at 93 cents a gallon, and natural gas fell 4 cents to close at $2.10 per one thousand cubic feet.
Precious and industrial metals futures closed mixed. Gold rose $17.10 to $1,090.70 an ounce, silver gained 15 cents to $13.90 an ounce and copper fell 3 cents to $1.94 a pound.
Bond prices rose. The yield on the 10-year Treasury note fell to 2.03 per cent from 2.09 per cent late Thursday. The euro rose to $1.0911 from $1.0862, while the dollar fell to 117.05 yen.