December 14, 2018

Dow falls 400 points on global growth fears

A global wave of selling arrived on Wall Street on Friday as investors fret about slowing economic growth.

The Dow declined about 400 points, or 1.6%, capping off another wild week of trading. The S&P 500 and Nasdaq each shed more than 1% as well.

Markets were dinged by a batch of negative economic and corporate developments.

Johnson & Johnson (JNJ), a popular defensive stock, plunged 9% on a Reuters investigation that found the company knew for decades that asbestos sometimes tainted its Baby Powder. J&J, the worst stock in the Dow on Friday, is on track for its worst day since 2002. J&J's lawyers told Reuters that its findings are "false and misleading."

The sharp selloff for J&J is having a pronounced impact on the Dow. And the fact that it's a widely held stock means the pain is being felt broadly.

"This is supposed to be a hiding place. It's certainly a blow to a lot of folks," said Michael Block, market strategist at Third Seven Advisors, a private wealth management firm. "Pain begets pain."

The global selloff began overnight after China reported weak economic reports that deepened worries about how tariffs are hurting growth.

"The ongoing trade war remains a headwind, truce or no truce," Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote to clients on Friday.

Friday's slide leaves US markets on track for a second consecutive week of losses. The S&P 500, down 10% in the fourth quarter, is on track for its worst quarter since 2011.

Jittery investors yanked a record $39 billion from global equities in the latest week, according to a Bank of America Merrill Lynch report released Friday. That included $28 billion that exited US stocks, the second-highest on record. And a record $8.4 billion was pulled from investment grade bonds.

"Capitulation out of risk" is how Bank of America chief investment strategist Michael Hartnett described it.

And money continues to flow to the safety of the US dollar, which climbed to an 18-month high on Friday against a basket of currencies.

Growth fears invaded the commodities markets as well. US oil prices tumbled 2%, while copper declined 1%.

Investors were not overly excited on Friday about positive news on the trade front. China said it will temporarily reduce tariffs on imports of American-made cars as the two nations continue to negotiate. Those tariffs were imposed in July in retaliation to US import taxes.

Global markets fell sharply on Friday. Japan's Nikkei 225 plunged 2%, while China's Shanghai Composite declined 1.5% and the Hang Seng lost 1.6%. In Europe, major markets lost about 1%.

"A string of disappointing economic [news] is spurring risk-off sentiment today," Marc Chandler, chief market strategist at Bannockburn Global Forex, wrote in a note.

China's retail sales decelerated in November to 8.1%, the weakest pace since 2003, according to Bannockburn. Industrial output was the slowest since 2002.

In Japan, a quarterly survey of business confidence by the Bank of Japan revealed that companies anticipate conditions to worsen in over the next three months.

Europe is also facing a deceleration. Business growth in the eurozone slowed in early December to the weakest level in more than four years, according to IHS Markit. The report found that the slowdown was "exacerbated" by the protests rocking France.

Hints of more muted growth in the United States are also emerging. The US private sector expanded in early December at the weakest pace since May 2017, according to IHS Markit.

"Something is wrong here. There is this global slowdown. We can't deny it," said Block.

US markets were also pressured by disappointing corporate developments. Starbucks (SBUX) retreated 3% on concerns about its long-term sales forecast. Costco (COST) lost 7% on a slight earnings miss. And Adobe (ADBE) slumped 6% after reporting mixed results.

The consumer news was more encouraging. US retail sales jumped more than anticipated in November, led by surging online growth. The numbers provided evidence that while the housing and auto industries are slowing, American consumers remain resilient.

"This is a great start to the holiday season," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a report.

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