Fears of a global financial slowdown, sparked off by worrying news from Europe and China, battered the markets down on Friday resulting in the benchmarks’ worst week this year. None of the 10 industry groups of S&P 500 could muster a finish in the green, and the index suffered its first set of consecutive declines since November last year.
The Dow Jones Industrial Average (DJI) plunged 1.2% to settle at 12,849.59. The Standard & Poor 500 (S&P 500) slumped 1.3% to finish Friday’s trading session at 1,370.26. The tech-laden Nasdaq Composite Index crashed to 3,011.33, after losing 1.5%. The fear-gauge CBOE Volatility Index (VIX) soared 13.7% to close at 19.55. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq remained low at roughly 6.07 billion shares, compared with last year’s daily average of 7.84 billion. Decliners outpaced the advancing stocks on the NYSE; as for 74% of stocks that ended in the red, only 23% stocks climbed higher. The remaining 3% stocks were left unchanged.
On Friday, the Dow registered its third triple-digit loss for the week and the index ended up in the negative zone. For the other benchmarks too, it was a week that they would like to forget. During the week, the benchmarks recorded their worst performance of the year, and their declines on Tuesday were not only the largest in percentage terms, but were also in terms of points. A bounce back over the next two days, including robust gains on Thursday, could hardly negate the strong losses and the benchmarks ended up suffering their worst week for the year. The Dow, S&P 500 and Nasdaq plunged 1.6%, 2.0% and 2.3%, respectively, for the week.
Not only were the benchmarks busy setting dismal records, but the fear-gauge index too had its fair share of misfortune. The VIX ended in positive territory for the fourth-consecutive week, recording the longest period of gains since August. Starting January till end of March this year, the VIX had plunged 32.5%, but it seems that the VIX reversed this trend over the past few weeks. In April alone, the VIX soared 26.1% and the one month change is a positive 35.1%. The VIX reflects the markets’ mood and an uptrend reflects increasing fears and apprehensions about the economy. The VIX has taken a cue from global concerns, which have been dampening sentiment over the past couple of weeks. Borrowing costs in Europe are trending up and China has also sparked off concerns because of weak economic data.
On Friday, similar concerns dampened sentiment, as Italy and Spain once again reported inflating borrowing costs. According to a report, industrial output in Italy had shrunk 0.7% in February. These concerns impacted the nation’s 10-year bond yields, which climbed 0.06% to 5.43%. Separately, as Spain’s borrowing from European Central Bank (ECB) reached the highest level and Spanish 10-year bond yields moved up to 5.86%.
Separately, China reported the slowest economic growth in 11 quarters. The National Bureau of Statistics reported that the country’s gross domestic product (GDP) expanded at 8.3% rate, the slowest quarter growth since global meltdown. The pace of growth also slowed from the 8.9% pace of growth in the previous quarter.
Such dismal news from the world’s second-largest economy combined with the surging concerns on the European front had investors concerned. Adding to these fears, economic data on the home front further dampened the mood. The University of Michigan/Thomson Reuters preliminary reading of consumer sentiment reported that the index had dropped to 75.7 In April from 76.2 in March. The reading not only showed a downtrend, but the drop was also below consensus estimates of 76.3.
Separately, the U.S. Bureau of Labor Statistics released its data on the Consumer Price Index (CPI), which also provided little to cheer about. The report noted that on a seasonally adjusted basis the Consumer Price Index for All Urban Consumers (CPI-U) was up 0.3%, as against the 0.4% rise in February. The report elaborated: “The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably,” and added, “The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February”.
Coming to sectoral stocks, the financial sector incurred heavy losses and the Financial Select Sector SPDR (XLF) dropped 2.3%. As for financial stocks American Express Company (NYSE:AXP), Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and Wells Fargo & Company (NYSE:WFC) declined by 1.3%, 5.3%, 3.5%, 3.6%, 4.4%, 5.2% and 3.5%, respectively.
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