Dow Falls Again; 2018 Gains Wiped Out

The Washington Post

The Dow Jones industrial average dove more than 600 points on Wednesday as another wave of volatility swept through U.S. financial markets.

The blue-chip index bobbed in the red most of the session, dragged down by a weak housing report and a beleaguered technology sector.

The tech-heavy Nasdaq took the steepest losses of the day, down 4.4 percent. It’s now in correction territory, down 11.4 percent from its all-time high last month, according to Bespoke Investment Group.

The sell-off in tech capped a horrendous month for the darlings of Silicon Valley, with painful losses in share value on Wednesday: Netflix lost 9.4 percent. Facebook lost 5.4 percent. Amazon, 6 percent. Apple, 3.4 percent.

The Dow’s drop was a sharp reversal after upward momentum as trading opened, initially buoyed by of a strong earnings report from aircraft maker Boeing. By day’s end, it had wiped out all of its 2018 gains, falling 606 points, or 2.4 percent, to close at 24,584.50. The Dow is looking at its worst month in eight years.

The Standard & Poor’s 500-stock index was off 3 percent on Wednesday.

“This could be a bull market correction or something more serious,” said Michael Farr, an investment manager in Washington. “This drop is coming out of technology.”

Some Wall Street experts said the steep sell-off in the last hour of trading was a scramble by sellers who are looking beyond this year and toward more modest earnings in 2019 — in the neighborhood of 5 percent growth instead of 20 percent.

They also are unnerved at the slowdown in the Chinese economy, the strong U.S. dollar and other global menaces such as a looming Italian financial crisis, U.S. tensions with Saudi Arabia and the latest domestic crisis involving a series of homemade bombs sent this week to the Clintons, Obamas and CNN.

Investors are closely watching other signals, too, including new inflationary concerns over tariffs and the Federal Reserve’s interest rate increases, which are coming under heavy criticism from President Donald Trump.

In a Wall Street Journal interview published on Wednesday morning, Trump took aim at the Fed chairman he appointed, Jerome Powell: “I’m not happy with what he’s doing at all.”

“He was supposed to be a low-interest-rate guy,” the president said. “It turned out he’s not.”

“One loyal follower of our research suggested that perhaps the market is spooked about the mixed-up mix of U.S. fiscal, monetary, trade and foreign policies,” according to Ed Yardeni, president of Yardeni Research. “I’ve recently been describing them as akin to driving a car with one foot pushing hard on the accelerator while the other is tapping on the brakes.”

Dow member AT&T fell short of third-quarter profit expectations on Wednesday, which pushed its share price down nearly 7 percent and added to worries about the tech sector. The semiconductor industry also has shown weakness. Texas Instruments, an industry leader, offered guidance that demand is waning. The losses fueled fears that the sector that has powered the current bull market is played out.

The energy sector also was a heavy drag, dropping 3.8 percent on the day. Energy is the poorest-performing sector in the last five sessions, down 8.6 percent.

A weakening Chinese economy has combined with an upcoming U.S. election to cast an air of uncertainty over markets.

The markets are in the midst of one of the busiest earnings weeks of the year, with major blue chips including Microsoft, Visa, Tesla, UPS and Ford all reporting on Wednesday.

Nancy Tengler, chief investment officer for Heartland Financial USA, said several things are at work driving down prices, one of which is the lack of buyers jumping in to the market to scoop up deals on stocks.

Some of those buyers are the companies themselves.

“You have all these buybacks, but right now is a blackout period, so these great companies and insiders can’t buy their own shares,” Tengler said. “There’s no offsetting buyer. So when the algorithms drive the sell programs, it feeds on itself. The same thing happened when the market dropped in January.”

The market’s shakiness comes despite the fact that many companies have beat earnings this quarter. But the projected earnings growth has slowed in big blue chips like 3M and Caterpillar, whose outlook for modest expectations through the end of the year rattled the markets on Tuesday. The Dow dropped nearly 500 points on Tuesday before climbing back in the afternoon. It closed down more than 100 points.

Tengler said current sell-off likely will end in a 10 percent correction prior to the upcoming midterm elections.

“After the elections, the buybacks will be allowed and kick in,” she said. “We will see a bounce between then and the end of the year.”

There’s another possibility for the pullback, said Brad McMillan, chief investment officer for Commonwealth Financial Network.

He put it this way: “Now we are starting to get into an area that suggests confidence itself in the market may be the reason.”