Wall Street stocks have fallen sharply in volatile trading, with the Nasdaq confirming it is in a bear market, as concerns of slowing economic growth led investors to flee stocks in high-valuation sectors such as technology and communication services.
The Dow Jones Industrial Average fell 414.23 points, or 1.81 perc ent, to 22,445.37, the S&P 500 lost 50.84 points, or 2.06 per cent, to 2,416.58 and the Nasdaq Composite dropped 195.41 points, or 2.99 per cent, to 6,332.99.
Stocks fell after Trump administration trade adviser Peter Navarro told Nikkei it would be ‘difficult’ for the United States and China to reach a long-lasting trade agreement that would end the simmering trade war between the world’s two largest economies.
The tech-heavy Nasdaq Composite dropped into a bear market, defined as a 20 per cent decline from its recent highs, for the first time since the global financial crisis in 2008. Broad stock markets in the United States and Europe are on pace for the worst quarter since 2008, while the Dow finished its worst week since late 2008.
‘China is cooling and the euro zone is slowing down, and some of the economic indicators from the US have been a bit soft recently, but yet the Fed hiked rates and suggested that two more interest rate hikes were lined up for 2019,’ said Michael Hewson, chief markets analyst at CMC Markets in London.
He said speculation that the US economy could be headed for a recession has picked up, dampening global sentiment. ‘Fear about a US government shutdown is playing into the mix too.’
US President Donald Trump has refused to sign legislation to fund the US government unless Congress authorises money for a Mexico border wall, thus risking a partial federal shutdown on Saturday.
‘Political brinkmanship in Washington is further heightening market uncertainty,’ said Westpac economist Elliot Clarke.
Adding to the air of crisis was news that US Defense Secretary Jim Mattis had resigned after Trump announced a withdrawal of all US forces from Syria and sources said a military pullback from Afghanistan was also planned.
Oil prices, which slid just over four per cent on Thursday, tumbled to their lowest since the third quarter of 2017. US crude fell one per cent to $US45.41 a barrel, while Brent fell 1.5 per cent to $US53.52.
The mood change has triggered a rush out of crowded trades, including massive long positions in U.S. equities and the dollar and short positions in Treasuries.