Tue | Jan 22, 2019

Stocks crater amid sell-off, oil steady

Published:Wednesday | January 13, 2016 | 5:27 PM

It's been a turbulent ride for stock market investors this year and it got worse Wednesday.

A broad downturn in US stocks on another volatile day for crude oil prices knocked the Standard & Poor's 500 index down 10 per cent from its November peak.

That's known as a correction on Wall Street, and it's the second time in less than five months for the S&P 500 index, which is regarded as the bellwether for the stock market.

The Dow Jones industrial average also tumbled, losing more than 300 points before closing within 25 points of its own correction level.

The rocky start to the year reflects mounting worries on Wall Street about a slowdown in the global economy, plunging oil prices and the implications for U.S. companies. It also deepens the pain for many investors after a flat year of returns for the stock market last year.

The S&P 500 index is now down 7.5 per cent this year, while the Dow is off 7.3 per cent. The Nasdaq is deeper in the red, down 9.6 per cent. The Russell 2000, which is comprised of small-company stocks, is now down 20 per cent from its June peak. That big a plunge is defined as a bear market.

"At the very core of this there's a bull-bear debate," said Quincy Krosby, market strategist at Prudential Financial. "Whether or not we're headed into a recession. That's the debate. Are we gaining the momentum in the economy to justify the valuation in the market?"

Energy and consumer stocks bore the brunt of the selling on Wednesday. The price of US crude oil closed slightly higher, but remains near US$30 a barrel, a level that investors fear could force many oil and gas company to go bankrupt.

Benchmark US crude edged up 4 cents to close at US$30.48 a barrel in New York. US crude is down 18 per cent so far this year. Brent crude, a benchmark for international oils, fell 57 cents, or 1.8 per cent, to US$30.31 a barrel in London.

In other energy trading, heating oil fell 2.1 cents to 96.9 cents a gallon and natural gas rose 1.2 cents to US$2.269 per 1,000 cubic feet.

Some of the biggest stock winners from last year, such as Netflix and Amazon, both of which doubled in value in 2015, also fell sharply Wednesday.

"The momentum names that drove this market higher have just been clobbered," Krosby said.

All told, the Dow lost 364.81 points, or 2.2 per cent, to 16,151.41. The S&P 500 index fell 48.40 points, or 2.5 per cent, to 1,890.28. It was the worst day for the index since September 28.

The Nasdaq slid 159.85 points, or 3.4 per cent, to 4,526.06.

All the sectors in the S&P 500 index ended sharply lower, with consumer discretionary stocks faring the worst, down 3.4 per cent.

The market was coming off its best day this year and appeared to be headed for more gains early in the day. A report showing that China's exports fell less than expected in November helped lift the market. The price of crude oil rebounded more than 3 per cent in the first hour of regular trading.

The trend didn't hold for long, however, as oil prices began to swoon following a report showing that demand for fuels slipped last week. Investors also began size up to discouraging earnings outlooks from Ford Motor and auto parts supplier BorgWarner. Ford fell 65 cents, or 5.1 per cent, to US$12.20. BorgWarner lost US$3.56, or 9.5 per cent, to US$33.84.

In Europe, Germany's DAX fell 0.2 per cent while France's CAC 40 rose 0.3 per cent. The FTSE 100 of leading British shares gained 0.5 per cent. In Asia, stocks rallied despite a 2.4 per cent drop in the Shanghai Composite. Japan's Nikkei 225 stock index jumped 2.9 per cent while Hong Kong's Hang Seng gained 1.1 per cent. South Korea's Kospi and Australia's S&P/ASX 200 added 1.3 per cent. Shares in New Zealand and Southeast Asia were mostly higher.

The yield on the 10-year Treasury note fell to 2.07 per cent from 2.11 per cent late Tuesday. Trading in foreign exchange markets was subdued. The euro was little changed at US$1.0857 and the dollar rose to 117.89 yen from 117.58 yen.