U.S. Stock Market Rout Spreads to Asia as Major Indexes Open Sharply Lower
U.S. equity markets plunged on Wednesday with the S&P 500 Index and Dow Jones Industrial Average turning lower for the year. Rapidly rising interest rates weren’t to blame for the steep sell-off this time. Instead, investors expressed concerns over corporate earnings and a sharp drop in technology shares.
In the cash market, the benchmark S&P 500 Index settled at 2656.10, down 84.59 or -3.09%. The blue chip Dow Jones Industrial Average finished at 24583.42, down 608.01 or -2.41% and the tech-based NASDAQ Composite ended the session at 7107.77, down 329.77 or -4.43%.
Increasing volatility is also a concern for traders at this time. The Cboe Volatility Index (VIX), widely regarded as the best gauge of fear in the market, traded above 24 on Wednesday and is up more than 100 percent this month.
Second quarter earnings are not the issue for investors since this news represents the past. According to FactSet, 80 percent of the companies that have reported have topped earnings expectations. Investors are looking at the future through guidance and the picture is murky given concerns over rising rates and the lingering trade disputes.
Other outside events are weighing on investor sentiment besides some earnings disappointments. They include the simmering conflict between Italy and the European Union over excessive budget spending, the stalemate in Brexit negotiations, the stand-off between Western powers and Saudi Arabia over the killing of dissident journalist Jamal Khashoggi, and forecasts that the global economic recovery is losing steam.
The FANG stocks played a major role in Wednesday’s sell-off. There had been warning signs all year that since their gains represented more than 50% of the stock market’s gains this year, their weakness could be a major drag on overall stock market performance.
On Wednesday, Facebook and Alphabet both fell more than 5 percent. Apple dropped an additional 3.4 percent. Netflix dropped 9.4 percent as investors second-guessed valuations.
U.S. Economic Reports
On Wednesday, the U.S. Commerce Department reported that sales for the month came in at 553,000 on a seasonally-adjusted basis. That is 5.5 percent below the downwardly revised August rate of 585,000 and a 13.2 percent tumble from the 637,000 reported for the same period a year ago.
Additionally, the report revealed that this was the worst monthly drop since December 2016. The figure was also well below analyst estimates of a 1.4 percent drop to 625,000.
The major indexes in Asia opened sharply lower in reaction to the steep sell-off in the United States. In Australia, the S&P/ASX 200 fell by 1.87 percent shortly after the opening. Losses were spread through all sectors including the energy subindex which fell 2.14 percent. The financial sector was off by 1.84 percent.
Japan’s Nikkei 225 dropped 3.34 percent shortly after the opening. The Topix Index declined by 2.88 percent. In South Korea, the Kospi Index entered into bear market territory with its early decline of 2.01 percent.
Hong Kong’s Hang Seng Index and China’s Shanghai Index are both expected to open sharply lower.