Stocks Fall Back Into Negative Territory for 2018 as Economic Uncertainty Grips Investors

Posted December 7, 2018 5:51 p.m. EST
Updated December 7, 2018 5:54 p.m. EST

Stocks on Wall Street dropped again Friday, pushing the S&P 500 into negative territory for the year, as investors continued to fixate on how much the economy and corporate profits could slow next year.

Until recently, the U.S. stock market had been something of a standout performer among global markets. The S&P 500 was up 9.6 percent for the year well into September. But over the last few months those gains have disappeared as investors began to assess the potential fallout from a trade war between the United States and China and, rising interest rates.

“Essentially there is a scare in the market about the future growth prospects of the global economy,” said Hari Srinivasan, senior research analyst at Neuberger Berman, an asset management firm.

On Friday, the S&P 500 fell 2.3 percent as those concerns overshadowed a report that showed the U.S. economy added another 155,000 jobs in November. Though the number of new jobs was lower than analysts had expected, there was plenty of evidence that the economy remains strong: November was the 98th consecutive month of job creation, employers increased payrolls, and monthly job gains are still averaging above 200,000 this year.

While the market initially rose slightly, those gains evaporated as the issue of a trade war resurfaced later Friday morning. Peter Navarro, director of the White House trade office, said on CNN that the United States would increase tariffs on Chinese imports if the two countries could not reach an agreement on trade by the end of a 90-day negotiating period. President Donald Trump and President Xi Jinping of China had agreed Saturday to the standstill on new tariffs, but confusion about the nature of the agreement has only added to recent volatility in the stock markets based on widespread expectation that the U.S. economy will likely slow next year.

Stocks started the week higher after news of the truce. But after Trump took to Twitter to threaten China with further tariffs, and then news broke of the arrest of Meng Wanzhou, a top Chinese technology executive, at the behest of authorities in the United States, markets went into a tailspin. For the week, the S&P 500 is down more than 4 percent.

On Friday, Canadian prosecutors said Meng, chief financial officer of Huawei and a daughter of the company’s founder, was charged with fraud. They said Meng may have personally participated in a scheme to trick U.S. financial institutions into making transactions that violated U.S. sanctions against Iran.

The arrest could mark a risky new phase for many big technology firms, which depend on networks of factories and subcontractors in Asia and have bet on strong demand from Chinese consumers to fuel future growth.

Shares of these companies fared particularly poorly Friday. Companies that make networking equipment and cellphones in China were also sharply lower. Semiconductor maker Advanced Micro Devices fell more than 8 percent, while Apple was down more than 3 percent. Microsoft and Amazon both fell more than 4 percent. And the tech-heavy Nasdaq composite index fell more than 3 percent.

Industrial stocks also saw significant losses Friday, with the S&P 500 industrial sector dropping 2.6 percent. Large exporters Boeing and Caterpillar, which ship large amounts of goods to China, fell 2.6 percent and 3.8 percent, respectively.

“It is a slowdown and it is making investors nervous, and it could possibly slow down further,” said Stephen Gallagher, director of research at Société Générale in New York. “And the risks are pointed to the downside with the trade tensions just continuing to build.”

One bright spot for the stock market early Friday was the shares of energy companies. They rose in early trading, along with crude oil prices, after members of the Organization of the Petroleum Exporting Countries agreed on a production cut at their meeting in Vienna.

But softer market sentiment soon touched the oil markets, where crude prices moderated their gains. After gaining more than 5 percent earlier in the day, Brent crude oil rose 2 percent, to $61.57 a barrel. West Texas crude, the American bench mark, rose 1.9 percent, to $52.48.

The S&P 500 energy sector declined by 0.6 percent.