Market Snapshot: Dow falls 650 points as trade concerns re-emerge

U.S. stocks deepened their losses in the final hour of trading Friday as new jitters on trade relations overshadowed the November employment report.

Benchmarks

The Dow Jones Industrial Average DJIA, -2.28%  fell 655 points, or 2.1%, at 24,425, the S&P 500 index SPX, -2.37% is down 72 points, or 2.7%, at 2,624, while the Nasdaq Composite Index COMP, -3.06% traded down 242 points, or 3.4%, lower at 6,947.

Check out: A death cross for the S&P 500 highlights a stock market in tatters

For the week, the Dow, S&P 500 and Nasdaq are set to show declines of more than 4.8%.

Late Friday morning, both the S&P 500 and the Dow fell into negative territory for the year, while the Nasdaq is clinging to a 0.8% advance year-to-date.

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 was the sector taking the heaviest losses in the S&P 500 Friday afternoon, down 5.9%, according to FactSet.

Read: Jobs report provides reason for Fed caution on interest rates next year

Retailers are particularly vulnerable to new tariffs, as companies like Walmart Inc. WMT, -1.65% and Target Corp. TGT, -2.56% source much of their merchandise from China. Walmart CEO Doug McMillon told CNBC on Thursday 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 are 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, 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

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 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

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 his cash holdings in many 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, -23.14% are trading down more than 9%, after wider-than-expected third-quarter loss.

Shares of Broadcom Inc. AVGO, +0.75% are in focus after the chip maker announced fiscal fourth-quarter profits and sales Thursday evening that topped Wall Street expectations. The stock is up 0.7% Friday.

Ulta Beauty Inc. ULTA, -12.60% shares have slumped more than 10% Friday, after a Thursday evening earnings release that predicted weaker holiday sales that analysts hoped.

Shares of Altria Group MO, -0.34% are in focus after the company announced it would take a 45% ownership stake in the cannabis-firm Cronos Group Inc. CRON, +23.16% worth $1.8 billion. The stock is up 0.6%, while Cronos shares are surging more than 22% on the news.

The transportation sector was hit hard Friday, as oil prices rose again to cap a week where they climbed 3.3%. American Airlines Group Inc. AAL, -9.16% stock fell 8.8%, while FedEx Corp. FDX, -6.14% stock tumbled 6.4% Friday.

Data and Fed speakers
  • Wholesale inventories rose by 0.8% in October as sales fell by 0.2%, the Commerce Department reported Thursday.
  • The University of Michigan consumer sentiment index came in at 97.5, above expectations of 97.3, per a MarketWatch poll of economists.
  • Both Federal Reserve Board Gov. Lael Brainard and St. Louis Fed President James Bullard gave speeches today.
  • A reading on consumer credit for October will be released at 3 p.m.
Other markets

Asian markets traded mostly higher Friday, with the Nikkei 225 NIK, +0.82% rising 0.8% and markets in South Korea SEU, +0.34% and Australia XJO, +0.42% advancing on the day. The Shanghai Composite Index SHCOMP, +0.03% was virtually flat, with gains of less than 0.1%.

European markets ended mostly higher Friday, with both the Stoxx Europe 600 SXXP, +0.62% and the FTSE 100 UKX, +1.10% in the green.

Crude oil CLF9, +2.29% rallied after OPEC and its allies agreed to a production cut, while gold GCG9, +0.92% advanced and the U.S. dollar DXY, -0.20% edged lower.

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