U.S. Stocks Slide on Global Growth Fears

Release Date:  Thursday, February 7, 2019
Investors grapple with conflicting economic signals, curbing enthusiasm for risk-taking

The Wall Street Journal , By  Akane Otani and Jessica Menton , Updated February 7, 2019

U.S. stocks slumped Thursday as U.S.-China trade tensions and a bleaker outlook from the Bank of England renewed fears of a slowdown in global growth.

The Dow Jones Industrial Average slid 315 points, or 1.2%, to 25075, on pace for its biggest percentage drop since Jan. 22. The S&P 500 lost 1.3%, after snapping a five-day winning streak Wednesday. The Nasdaq Composite shed 1.5%.

The technology and communication sectors in the S&P 500, which were hit hard late last year on growth worries, led the broader market lower, both shedding 1.8%. Defensive sectors such as utilities and real estate were the only groups that rose, ticking up and 0.6% and 0.3%, respectively.

Investors have had to grapple with conflicting signals about the durability of the global economic expansion this year, something that has kept enthusiasm for risk-taking contained even after markets rallied in January.

Losses accelerated after White House economic adviser Larry Kudlow said China and the U.S. were still far away on striking a trade deal in an interview with Fox Business Network.

A White House official later said President Trump is "highly unlikely" to meet with Chinese President Xi Jinping ahead of the March 1 deadline for a resolution. Trade sensitive stocks including machinery giant Caterpillar and Boeing slid 2.1% and 1.3%, respectively.

Hopes that the U.S. and China might be able to carve out a trade deal had helped stocks rebound in recent weeks. Yet data have pointed to growing weakness in China and the eurozone, raising the threat of regional economic malaise spreading around the world.

Mark Esposito, founder and chief executive of Esposito Securities, said there is growing concern among investors that Washington isn't going to reach an accord with Beijing by the deadline.

"It's going to be rocky heading into March because there's a lot of uncertainty," Mr. Esposito said. "I'm more concerned about corporate earnings going forward not being robust, and that causing the market to fall."

Fourth-quarter earnings season has been better than expected so far, though investors have been monitoring companies' growth outlooks for any signs of a slowdown in profit growth. More than 30 companies in the S&P 500, have offered first-quarter earnings forecasts that fell short of analysts' estimates in recent weeks, putting the index on track to report a 1.4% decline in profits in the first quarter from a year earlier.

Among tech-focused shares, Facebook , Netflix and Amazon each shed at least 2.5%. Google parent Alphabet and iPhone maker Apple lost 2.4% and 1.7%, respectively.

Twitter shares fell 11% despite posting its first full year of profitability after the company said it expects revenue in the current quarter to grow by a lower percentage from a year ago.

The financial sector in the S&P 500 shed 1.4% after BB&T struck a deal to buy SunTrust Banks in a merger valued at about $66 billion that would create the sixth-largest U.S. bank. Shares of Bank of America , Morgan Stanley and Citigroup each lost more than 2%.

Meanwhile, Chipotle Mexican Grill shares jumped 13% after the burrito maker reported a stronger-than-expected fourth-quarter profit late Wednesday.

Elsewhere, reports Thursday showed industrial production unexpectedly fell in Germany and Spain in December and the European Commission cut its forecast for eurozone growth in 2019.

Investors remain in the dark on a number of potential flashpoints in global politics that they say could damp growth. In the U.K., lawmakers have yet to reach a consensus for how the country should proceed ahead of its scheduled departure in March from the European Union.

The "economy is suffering under the strain of Brexit and talks of extending the uncertainty," said Jasper Lawler, head of research at London Capital Group. That has muddied the picture for officials at the Bank of England, which on Thursday held interest rates steady and cut its outlook for economic growth.

The British pound fell further following the decision, recently trading down 0.3% against the U.S. dollar. The Stoxx Europe 600 declined 1.5%.

Petra Bakosova, chief operating officer and portfolio manager at Hull Tactical Asset Allocation, said her firm has become more defensive recently because of indicators like the Federal Reserve's survey of senior loan officers released Monday that showed lending conditions for companies have tightened. The firm is holding 98% in cash and short-term bonds, with just 2% exposure to the broader U.S. stock market, she said.

"Investors were too quick to forget about the volatility in December, and now they're realizing and pulling back," Ms. Bakosova said.

In commodities, U.S. oil prices fell 4% to $51.86 a barrel, extending a streak of up-and-down trading for the market. Oil prices are up about 15% this year, although some of the momentum behind the rally has eased in recent days as traders have weighed signs of stalling global growth. The energy sector of the S&P 500 lost 2.6%, with shares of Exxon Mobil and Chevron both down 1.5% apiece.

Elsewhere, stocks in Asia were mixed, but with exchanges in Shanghai and Hong Kong remaining closed in observance of holidays, trading volumes were relatively muted. Japan's Nikkei Stock Average fell 0.6%, while Australia's benchmark S&P/ASX 200 jumped 1.1%.

— Lorena Ruibal contributed to this article. 

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