U.S. stocks take hardest hit since June's Brexit vote
U.S. stocks fell sharply Friday, sending the Dow Jones industrial average nearly 400 points and giving the market its biggest loss since June. Telecom, utilities and materials companies led the broad slide as traders reacted to a spike in bond yields. Energy stocks slumped as crude oil prices headed lower.
The market swoon came as remarks from a Federal Reserve bank president fueled speculation among investors that the central bank may raise its key interest rate this year. Ultra-low interest rates have been a key driver of an extended stock market rally.
The Dow Jones industrial average fell 394 points, or 2.1 percent, to 18,085. The Standard & Poor’s 500 index slid 53 points, or 2.5 percent, to 2,128. The Nasdaq composite index lost 134 points, or 2.5 percent, to 5,126. The index had notched record-high closes on Tuesday and Wednesday.
In a speech early Friday, Fed Bank of Boston President Eric Rosengren suggested a case could be made for the central bank to raise its key interest rate sooner rather than later. The Fed is scheduled to hold a policy meeting later this month. In recent weeks, few Fed observers have expected the Fed to lift rates this month, but a December hike is looking more likely, said JJ Kinahan, chief strategist at TD Ameritrade.
“We have a good probability that we’re getting it by the end of the year,” Kinahan said.
Several oil and gas production and drilling companies were down, giving back some of their gains from a rally Thursday. Diamond Offshore Drilling led the decliners in the S&P 500, losing $1.73, or 10 percent, to $15.67. Transocean shed 62 cents, or 5.9 percent, to $9.85, while Marathon Oil slid $1.01, or 6.1 percent, to $15.73.
High-dividend stocks like utilities and phone companies slumped amid growing speculation of a Fed interest rate hike, which helped drive bond yields higher. Those stocks have been in favor among investors seeking income while interest rates and bond yields remained ultra-low. AT&T was down $1.41, or 3.4 percent, to $39.78, while Verizon slid $1.77, or 3.3 percent, to $51.84.
Williams Cos. fell on news that Enterprise Products Partners has told the natural gas company it is no longer interested in a possible merger.
Hovnanian Enterprises tumbled after the homebuilder disclosed weak third-quarter results and cut its forecast for the year.
General Motors slid after the automaker said it is recalling about 4 million vehicles worldwide to fix an air bag software defect that has been linked to one death.
Furniture and housewares retailer Restoration Hardware and fiber optic components supplier Finisar were up sharply on strong quarterly results.
North Korea conducted a “higher level” nuclear test explosion on Friday. The nation boasted that it can now build an array of stronger, smaller and lighter nuclear weapons. It was the North’s fifth atomic test and the second in eight months. South Korea’s president called the detonation, which Seoul estimated was the North’s biggest-ever in explosive yield, an act of “fanatic recklessness.” Japan called North Korea an “outlaw nation.”
Disappointment over Thursday’s decision by the European Central Bank to keep monetary policy unchanged continued to weigh on European markets. Germany’s DAX fell 1 percent, while France’s CAC 40 lost 1.1 percent. Britain’s FTSE 100 was down 1.2 percent. In Asia, concerns over North Korea’s latest nuclear test hit stocks in South Korea. The Kospi index fell 1.3 percent. Japan’s benchmark Nikkei 225 rebounded from an initial drop to finish little changed, while Hong Kong’s Hang Seng rose 0.8 percent.
Oil prices were headed lower after rallying a day earlier. Benchmark U.S. crude fell $1.63, or 3.4 percent, to $46.01 a barrel. Brent crude, used to price international oils, was down $1.83, or 3.7 percent, at $48.16 a barrel.
Bond prices fell. The yield on the 10-year Treasury rose to 1.67 percent from 1.60 percent late Thursday. The 10-year Treasury yield is at its highest level since late June.
Gold slid $7.10 to $1,334.50 an ounce, while silver fell 31 cents to $19.37 an ounce. Copper dipped a penny to $2.09 a pound.
The dollar rose to 102.69 yen from 102.49 on Thursday. The euro slipped to $1.1213 from $1.1257.