Dow closes nearly 400 points lower as oil rout deepens

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Stocks closed sharply lower Friday ahead of a long weekend and the onslaught of earnings season after a slew of disappointing U.S. data, a plunge in oil to below $30 a barrel, and a sell-off in Chinese stocks added to mounting concerns about slowing global growth.

Stocks came well off session lows in afternoon trade, with about an hour to the close. The Dow ended 391 points lower after earlier falling nearly 537 points. The S&P 500 and Nasdaq indexes also lost more than 2 percent.

“I think some of that was overselling. Still, (about) 400 points is pretty serious. I think going into the close I think things could possibly get better,” said Douglas Cote, chief market strategist at Voya Investment Management. He’s telling investors, “stick to global diversification and don’t panic.”

“This seems overdone, (but) oil under $30 raises a lot of concern about the impact to not only energy but also the banks and their exposure,” he said.

U.S. crude oil settled down $1.78, or 5.71 percent, at $29.42 a barrel, the first settle under $30 in 12 years.

The S&P 500 tried to hold above its August low of 1,867. The index briefly fell 3.5 percent in midday trade to below that level, to its lowest since October 2014.

“I think it means we can continue to go lower. … Crude continues to struggle as we continue to get mixed signals from China,” said JJ Kinahan, chief strategist at TD Ameritrade.

The Dow struggled to hold the psychologically key 16,000 level, with Goldman Sachs contributing the most to declines.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, briefly topped 30.

“Taking out that August low is definitely concerning,” said John Caruso, senior market strategist at RJO Futures. “It may not happen in the near term, (but) definitely low prices are coming.”

The major averages traded about more than 2.5 percent lower in afternoon trade. The Nasdaq composite temporarily lost more than 4 percent in midday trade.

Financials and energy dipping more than 4 percent each to lead all S&P 500 sectors lower.

“The fact that financials are leading it after positing good earnings is troubling,” Kinahan said.

White House spokesman Josh Earnest said the market action is “closely watched at the Treasury Department” and that financial markets around the world are under watch. The White House does not usually comment on market moves.

“Simply put, we’re not talking about a wall of worry right now. We’re talking about a mountain,” said Ryan Larson, head of equity trading, U.S., RBC Global Asset Management (U.S.).

“It’s not anything new. It’s the continued persistence of global growth concerns,” he said.

Larson and other analysts also noted a risk-off sentiment Friday ahead of the three-day holiday weekend.

U.S. stock markets are closed Monday for Martin Luther King, Jr. Day. China GDP is among the few data points from the country due out ahead of Tuesday’s U.S. trading session. Friday also marks an options expiration day that could bring more volatility.

“We suffered some real technical damage and the thing that worries me is this systemic lack of confidence. I still think the fundamentals are solid,” said Brad McMillan, chief investment officer at Commonwealth Financial. “The U.S. economy is not going into a recession anytime soon.”

The Dow transports fell more than 3 percent with Avis Budget leading all constituents lower.

Oil fell sharply amid the China stock sell-off and concerns about more oversupply from possible lifting of international sanctions within days that could increase Iranian oil exports. The weekly rig count showed a decline of 1, according to Baker Hughes.

“Obviously it started with growth concerns overseas and now we’re (hitting) ourselves with the same growth concerns as retail sales were weak and Empire manufacturing that collapsed,” said Peter Boockvar, chief market analyst at The Lindsey Group.

Dow futures briefly fell 400 points and the 10-year Treasury yield dipped below 2 percent after retail sales declined 0.1 percent in December. Ex-autos, retail sales also fell 0.1 percent.

The 10-year yield was near 2.03 percent and the 2-year yield around 0.82 percent as of 12:51 p.m. ET.

The January Empire manufacturing was minus 19.4.

The Producer Price Index fell 0.2 percent in December after rising 0.3 percent in November.

Industrial production for December fell 0.4 percent. Capacity utilization was 76.5 percent.

January U.S. Michigan preliminary Consumer Sentiment was 93.3. November U.S. business inventories fell 0.2 percent.

“What it is saying is the U.S. economy in the fourth quarter is slowing and the data is in line with that expectation of that slowdown. However, the market’s concerns of recession are much more elevated than they were a few days ago because of emerging markets, China and commodities,” said Krishna Memani, chief investment officer at OppenheimerFunds.

“Because investors don’t trust underlying data coming out of (emerging market) countries much, they are looking at market indicators as proxies,” he said, noting he thinks concerns about emerging markets are overblown.

New York Federal Reserve President William Dudley said that future rate hikes depend on data and that rates are set to continue on gradual upward path. He added that overseas economies pose risk to the United States and there’s little change in outlook since the Fed meeting.

Core inflation is quite stable despite lower energy, Dudley said, noting 2016 growth is to be slightly above 2 percent.

San Francisco Federal Reserve Bank President John Williams told Reuters Friday the stock market’s swoon does not change the economic outlook and is merely market participants trying to make sense of global developments,

“If the Fed is not going to be underpinning the market, the valuations have to fall into line with fundamentals,” said Quincy Krosby, market strategist at Prudential Financial.

“This (sell-off) should not be a surprise to the market. This has been telegraphed to the market for some time. … This is not abnormal for four years of no pullbacks,” she said.

The Shanghai composite fell about 3.5 percent. European stocks closed down more than 2.5 percent.

The People’s Bank of China set the yuan mid-point fix at 6.5637, comparatively flat relative to Thursday’s fix of 6.5616.

The iShares MSCI Emerging Markets ETF (EEM) traded 4 percent lower in afternoon trade.

The U.S. dollar index was down about 0.2 percent. The euro was at 1.09 and the yen at at 116.94 yen against the greenback.

About nine stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 831 million and a composite volume of 3.6 billion in afternoon trade.

High-frequency trading accounted for 49 percent of January’s daily trading volume of about 8.97 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.

Gold futures for February delivery settled up $17.10 at $1,090.70 an ounce.

Evelyn Cheng

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