Concerns over China’s manufacturing slowdown left investors wary of equities and emerging market currencies; dragging the domestic benchmarks to heavy losses. The concerns merged with fears of the Federal Reserve further trimming its economic stimulus. The Dow had its worst day since last June while the blue-chip index and S&P 500 suffered their worst weekly runs in many months. Improved profits or earnings beat from heavyweights like Procter & Gamble, Microsoft and Starbucks were of no help to the markets.
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In its worst performance since last June, the Dow Jones industrial average slumped 318.24 points, or 2%, to finish at 15,879.11. The Standard & Poor 500 tumbled 2.1% and closed at 1,790.29. The tech-laden Nasdaq Composite Index wasn’t spared either as it tanked 2.2% to sign of the trading session at 4,128.17. The fear-gauge CBOE Volatility Index (:VIX) soared 31.7% to settle at 18.14. Total volume on the New York Stock Exchange was 3.64 billion. The advancers were routed by declining stocks on the NYSE; as for 85% stocks that fell, only 13% could move higher.
A day earlier the Dow had dropped about 176 points and Friday’s 318 point-drop took the blue-chip index down by nearly 500 points. The Dow had last suffered back-to-back triple digit losses on Dec 11 and 12. Friday’s loss was the worst one for the Dow since June last year. The S&P 500 too registered its worst session since November 2012. It closed at the lowest level since Dec 17, also dropping below the 1,800 mark and its 50-day moving average since then.
As for the weekly numbers, the Dow was down 3.5%, registering its worst weekly loss since 2011. The Standard & Poor 500’s 2.6% weekly loss led to its worst weekly percentage decline since June 2012. The Nasdaq dropped 1.7% in the week.
These heavy losses were largely due to global concerns, emanating from China’s dismal manufacturing data. On Thursday, the HSBC preliminary survey showed a contraction in China’s manufacturing sector. The “flash” HSBC/Markit China manufacturing Purchasing Managers’ Index dropped to 49.6 in January from the 50.5 registered in December. The preliminary PMI reading dropped to a six-month low and was short of estimates of a reading of 50.3.
The contraction in manufacturing activity in the world’s second-largest economy had unnerved investors. Separately, Chinese economy was reported to have advanced at 7.7% in Oct-Dec last year, lower than the prior quarter’s advance of 7.8%. China’s growth is now short of the double-digit growth it enjoyed last decade. The slowdown in China is a major concern for even countries supplying iron ore, oil and other raw materials to it.
These factors, along with political and economic concerns emanating from emerging markets, dragged currencies to multi-months low. In fact, emerging-market currencies suffered the worst selloff in five years. Argentine government said it would curtail its support to the foreign-exchange market, dragging the peso lower. The peso had its worst fall since 2002. A threat to the stability of the government in Turkey has seen its currency hitting record lows of late. Separately, hryvnia, Ukraine’s currency, dropped to a four-year low. South Africa’s rand saw itself weakening beyond 11 per dollar for the first time since 2008.
In addition, speculations are rife that the US central bank may further trim its bond buyback program. The central bank had announced its decision following the conclusion of the Federal Open Market Committee meeting on Dec 18 to start tapering its $85 billion bond buyback plan. It was decided to reduce bond repurchases by $10 billion, bringing monetary stimulus to $75 billion a month from January.
Now, the central back is scheduled to meet this Tuesday and Wednesday; where a large number of economists anticipate another cut by $10 billion. That would bring the bond repurchase plan to $65 billion a month.
The day also saw certain corporate results; which played hardly any role in reversing markets’ fortune. The Procter & Gamble Company (NYSE:PG) reported an earnings beat despite worse-than-expected currency headwinds. Moreover, pricing improved in the quarter and margins were better than the previous quarter. Shares of Procter & Gamble moved up 1.2%. Starbucks Corporation (NASDAQ:SBUX) gained 2.2% following a 25% jump in profits. Tech bellwether Microsoft Corporation (NASDAQ:MSFT) gained 2.1% after its quarterly earnings of 78 cents a share beat Street estimates significantly.
Moving to the sectors, the industrial sector was the biggest decliner among the S&P industry groups and the Industrial Select Sector SPDR (XLI) tanked 3.1%. Major stocks from the sectors such as General Electric Company (NYSE:GE), United Technologies Corp. (NYSE:UTX), The Boeing Company (NYSE:BA), 3M Company (NYSE:MMM), Honeywell International Inc. (NYSE:HON) and Caterpillar Inc. (NYSE:CAT) dropped 3.4%, 2.7%, 3.3%, 3.3%, 1.5% and 2.6%, respectively.
Read the analyst report on PG
Read the analyst report on SBUX
Read the analyst report on MSFT
Read the analyst report on GE
Read the analyst report on UTX
Read the analyst report on BA
Read the analyst report on MMM
Read the analyst report on HON
Read the analyst report on CAT
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