U.S. Stocks Finish Week Sharply Lower with NASDAQ Closing in Bear Market Territory

The major concerns revealed this week were fears that the U.S. Federal Reserve is wrong in its assessment of the strength of the economy and raising rates unnecessarily, and a potential government shutdown.
James Hyerczyk
Stock Market Turmoil
Stock Market Turmoil

The major U.S. stock indexes plunged on Friday, finishing the week sharply lower as investors continued to react to the U.S. Federal Reserve’s hawkish tone from Wednesday, while preparing for the U.S. government’s third shutdown of the year.

This week’s scorecard looked ugly with the NASDAQ Composite closing in bear market and the Dow Jones Industrial and S&P 500 Index knocking on the door of a similar move. A bear market is measured by technicians as a 20% or greater decline from a major top.

In the cash market for the week, the benchmark S&P 500 Index settled at 2416.62, down 7.1%. Year-to-date, it’s down 9.6%. The blue chip Dow Jones Industrial Average closed at 22445.37, down 6.9%. It’s down 9.2% for the year and the technology-based NASDAQ Composite finished at 6333.00, down 8.4%. It is down 8.3% in 2018.

Investors’ Major Concerns

The major concerns revealed this week were fears that the U.S. Federal Reserve is wrong in its assessment of the strength of the economy and raising rates unnecessarily, and a potential government shutdown.

Also contributing to the weakness were the lack of any major economic data, or news that could’ve helped encourage buyers to step in and stop the price slide. Low pre-holiday volume and tax-related selling may have also contributed to the heightened volatility and somewhat exaggerated selling pressure.

There were no major geopolitical events last week with Brexit negotiations and U.S.-China trade relations staying out of the headlines. Furthermore, the international stock indexes outperformed the U.S. stock indexes, indicating the bearish concerns were caused by isolated problems in the United States.

No Observed Panic Selling

For the most part, Friday’s price action was volatile, but orderly. In fact, early in the session buyers were in control before the bottom fell out later in the session.

During Friday’s turbulent session, stock index prices rose early with the Dow up as much as 350 points, only to turn negative less than an hour later. The catalyst behind the rally were comments from Federal Reserve Bank of New York President John Williams. He told CNBC that the central bank could reassess its interest rate policy and balance sheet reduction in the new year if the economy slows.

“We are listening, there are risks to that outlook that maybe the economy will slow further,” Williams told Steve Liesman on CNBC’s “Squawk on the Street” Friday.

“What we’re going to be doing into next year is re-assessing out views on the economy, listening to not only markets but everybody that we talk to, looking at all the data and being ready to reassess and re-evaluate our views,” he said.

Gains were erased and the losses continued as investors began to price in the impact of a possible shutdown. The selling pressure accelerated to new lows for the day after President Donald Trump’s trade adviser, Peter Navarro, told Nikkei that it would be “difficult” for the U.S. and China to arrive at a permanent economic agreement after a 90-day ceasefire in the trade tensions.

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