U.S. stocks down sharply in midday trade with investors unnerved by China volatility and the continuing slide in oil prices.
NEW YORK CITY, NEW YORK, UNITED STATES (JANUARY 7, 2016) (NYSE) – U.S. stocks were sharply lower in midday trade on Thursday (January 7) as market volatility in China and a relentless slide in oil prices unnerved investors, extending the shaky start to the year.
China allowed the biggest fall in the yuan in five months, and Shanghai stocks were halted for the second time this week after another brutal selloff tripped a newly imposed circuit breaker.
Global stocks, however, recouped some losses after the Shanghai and Shenzhen stock exchanges said China would suspend the circuit breaker as of Friday.
With Beijing accelerating the yuan’s depreciation to make its exports more competitive, investors fear the world’s second-largest economy is even weaker than had been imagined.
“If you look at it, it’s being driven by China,” said Michael Lear, Vice President of Athena Capital, when asked what was driving the U.S. markets lower on Thursday.
“They have halted twice this week because of the new trading rules that they have in place, but what you’re seeing is they’re responding as you would in terms of devaluing their currency, making their exports more attractive. So that is kind of the known. What the unknown is in all this is how that translates into the global markets and this is the first time we’ve seen China growth slow in this way.
Adding to the gloom, oil slipped below $33 a barrel to near 12-year lows due before regaining some ground. Still, oil prices are down about 70 percent since mid-2014.
“Across the board you’re seeing global indicators of growth on their low, so oil can continue to tick lower,” said Kevin Kelly, Chief Investment Officer at Recon Capital Partners.
Richmond Federal Reserve President Jeffrey Lacker struck a hawkish note on Thursday, saying the central bank may need to raise interest rates more than four times this year if oil prices stabilize, the dollar stops appreciating and inflation surges toward the Fed’s 2 percent target.
However, Fed funds futures contracts show that traders expect the central bank to raise rates at least twice in 2016, and are reducing bets on a third hike by December.
At 12:34 p.m. ET (1734 GMT) the Dow Jones industrial average was down 206.75 points, or 1.22 percent, at 16,699.76, the S&P 500 was down 25.49 points, or 1.28 percent, at 1,964.77 and the Nasdaq Composite index was down 79.95 points, or 1.65 percent, at 4,755.82.
Billionaire investor George Soros, speaking at an economic forum in Sri Lanka, drew similarities between the present environment and the financial crash of 2008.
He said global markets were facing a crisis and investors needed to be very cautious, Bloomberg reported.
The World Bank also cut its global economic growth forecast for 2016, saying the weak performance of major emerging market economies will tamp activity overall, as will anemic showings from developed countries such as the United States.
All 10 major S&P 500 sectors were lower with the financial index’s 1.8 percent fall leading the decliners. JPMorgan’s 2.6 percent fall weighed the most on the sector.
Data showed the number of Americans filing for unemployment benefits fell last week from a more than five-month high. The report comes ahead of the government’s closely watched monthly employment report due for release on Friday.
Shares of Apple were down 1.9 percent at $98.75 (USD), following reports of slowing shipments of the iPhone 6S and 6S Plus.
Yahoo fell 4.5 percent to $30.69 (USD) after Business Insider reported the company was working on a plan to cut its workforce by at least 10 percent. Alibaba, in which Yahoo has a stake, was down 4.8 percent at $73.60.