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US stocks fell sharply in late trading on Wednesday, wiping out the last of this year’s gains on swelling concerns about a slowdown in the global economy and an inflection point for Corporate America’s profit machine.
Investors dumped shares of technology companies, which have led the market rally in recent years, sending the Nasdaq Composite index to its biggest loss in seven years and putting it on course for its worst month since the 2008 financial crisis.
“It’s super-ugly, and who knows when it will be over,” said Adam Sender, chief investment officer of Sender Company and Partners, an investment group. “I’m very defensively positioned.”
A sell-off that had been deepening all day accelerated sharply into the close, with the S&P 500 and Dow Jones Industrial Average ending in negative territory for the year, while the Nasdaq slumped into correction territory after tumbling 4.4 per cent.
Against a backdrop of rising interest rates and growing trade tensions, the feeling that the best days of the economic cycle were in the past was taking hold — fed by the results of bellwether industrial companies such as Caterpillar and 3M this week.
“That is definitely the fear — that we are at peak earnings,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors.
The S&P 500 fell for the sixth straight day, finishing 3.1 per cent lower at 2,656.10 points — and down 0.65 per cent year-to-date. The Nasdaq Composite ended 4.4 per cent lower at 7,108.40 for its biggest one-day drop since August 2011. About half the S&P 500’s decline came in the last hour of the trading day.
“It felt like a bit of panic selling in the last few minutes” of trading, said JJ Kinahan, chief market strategist at TD Ameritrade. “This the first time I have felt in this whole sell-off like there was panic selling.”
The newly formed communication services sector led the decline on the S&P 500, falling 4.8 per cent, dragged down by AT&T, which ended 8 per cent lower, after missing quarterly profit forecasts because Americans are ditching their pay-TV subscriptions.
The Nasdaq biotechnology sector stumbled 6.3 per cent for its worst day since 2011.
Information technology was close behind with a 4.4 per cent slide, as chipmakers felt particular strain. The S&P 500 semiconductor and semiconductor equipment index fell 6.5 per cent, its worst one-day performance since January 2009.
“Tech was the area last year that always saved us. Today that is what brought us down,” Mr Kinahan observed.
Shares in Texas Instruments fell more than 8 per cent after its revenues and earnings forecast disappointed investors. After the bell, AMD released disappointing earnings that sent its stock down a further 22 per cent, on top of its 9 per cent decline during Wednesday’s trading hours.
“Semiconductors are so tied to Asia,” Mr Gokhman said, citing trade tensions that are threatening longstanding supply arrangements. “Most supply chains — once you disrupt them, it is hard to find alternatives.”
The Dow ended the day 2.4 per cent lower at 24,583.42 and is now down 0.55 per cent year-to-date. The Russell 2000 index of small-cap stocks fell 3.1 per cent to 1,468.66, bringing its losses to more than 15 per cent since the end of August.
Earlier in the week a group of US industrial companies reported rising prices and costs, with groups including 3M, Caterpillar and United Technologies discussing plans to raise prices.
“Everything but everything is against the stock market’s continued advance,” said Chris Rupkey, chief financial economist at MUFG. “The economy is in its late stages of the growth cycle after moving ahead for almost 10 full years, and it is in danger of losing the fuel from the tax cuts and Jobs Act. Every day 10,000 more baby-boomers retire and face a decision on how much money to take off the stock market poker table.”
Treasuries rallied for a second day as investors sought out so-called safe haven assets. The yield on the US 10-year Treasury bond slipped more than 6 basis points to 3.1 per cent, while the yield on the two-year was down 5bp to 2.83 per cent. Yields move inversely to price.
Mr Sender argued that the stock market sell-off was fairly orderly, despite its severity, which could indicate that the tumble had further to run, with margin calls likely to go out to leveraged investors wrongfooted by the slide.
“Until we see a total capitulation I’m not stepping in,” he said. “They don’t ring a bell at the top.”
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