Trailing on a global rout, U.S. stocks dropped deep into the red as investors digested the Federal Reserve’s rate increase and its softer outlook for 2019.
They sank deeper still on the news that President Donald Trump would not sign the spending bill that would avert a government shutdown. Also lurking are growing concerns about a slowdown in the global economy.
The Dow plummeted 464 points, or 2 percent, to close at 22,859. The Standard & Poor’s 500-stock index was down 1.6 percent. The tech-heavy Nasdaq composite was off 1.6 percent — and has dropped into a bear market — or more than 20 percent below its high.
“Investors were discouraged by the lump of coal they got in their holiday stockings from the Fed,” said Sam Stovall, investment strategist at CFRA. “It is basically saying that with the economy as strong as it is, it can withstand two additional hikes next year. A lot of investors expected the Fed to say, ‘One and done.’”
Stocks steered lower in the late morning on the news that Trump would not commit to signing legislation to avoid a partial government shutdown — unless he receives more funding for border security, “which includes steel slats or a wall,” White House press secretary Sarah Sanders said.
“The possible shutdown is clearly exerting significant downward pressure on stocks today,” said Kristina Hooper, chief global strategist at Invesco.
Ten of 11 S&P sectors were down Thursday, with safe-haven utilities the only positive industry. Leading the losers were tech and consumer discretionary.
“Tech weakness may at least partially reflect concerns about a global slowdown,”Hooper said, “as tech is the sector with the highest exposure to revenues outside the U.S.”
Stovall said malaise in the tech sector was due to a combination of the U.S.-China trade skirmish, the U.S. announcement on Thursday accusing China of a long-term effort to hack into American technology providers and the District of Columbia attorney general’s lawsuit against Facebook alleging that the social media company shared user information without permission.
Global markets were down across the board after the Federal Reserve on Wednesday lowered its 2019 growth forecast from 2.5 percent to 2.3 percent. It boosted interest rates up a quarter-point to a range of 2.25 to 2.5 percent, the highest rate in a decade, but low by historic standards.
The central bank indicated it is likely to do two interest rate increases in 2019, down from forecasts of three increases.
The Dow and the Standard & Poor’s 500-stock index are on pace for their worst quarter since 2011 and worst year since 2008. The Dow has fallen 10 percent from its September peak, wiping out all gains for the year. Other markets, especially high-yield debt, are showing signs of stress and making it more difficult for companies to borrow money.
Fed Chair Jerome Powell at a news conference Wednesday said the economy remains “healthy” and “solid” and said he did not see any reason to sharply change the Fed’s path of gradually pulling back support for it. But he acknowledged the economy is showing signs of “softening.”
Oil prices kept up their steep, three-month decline, with West Texas Intermediate slipping to $45 per barrel. The $50 per barrel is a key threshold because producers find it more difficult to make money below that mark.
“There is full out skepticism now about the ability of Russia and OPEC to sufficiently cut supplies,” said John Kilduff of Again Capital “The problem that occurred last night was Saudi Arabia, despite the promise to cut, said it would still supply Asia. That undercut credibility about the implementation of cuts.”
Oil is now down 35 percent from its 52-week high with no sign of letting up. The recent drop come overnight on news that Saudi Arabia is going to make good on its oil contracts to Asia, despite a deal earlier this month between the OPEC and Russia to cut production by 1.2 million barrels per day.
Powell made it clear that the Fed will no longer hold up the stock markets.
“Powell put the markets on notice that the Fed will be much less willing to shape monetary policy in order to support asset prices,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.