U.S. stocks were down sharply Thursday morning, after the arrest of a Huawei executive reignited trade worries, and as continued weakness in oil markets underscored concerns over global growth ahead of an OPEC meeting in Vienna Thursday.
How are the benchmarks trading?
The Dow Jones Industrial Average DJIA, -2.38% fell 551 points, or 2.2%, at 24,472, while the S&P 500 Index SPX, -2.20% was down 54.34 points to 2,646 a loss of 2%. The Nasdaq Composite Index COMP, -1.81% tumbled 116 points, or 1.6%, at 7,044.
U.S. stock markets were closed Wednesday to mark a national day of mourning after the Friday death of former President George H.W. Bush, and on Tuesday trade concerns helped push all three major indexes more than 3% lower on the day.
Read: The worst-performing stocks on ‘Tariff Man’ Tuesday
What’s driving the market?
Investors have been rattled by news that the Canadian authorities had arrested Meng Wanzhou, the chief financial officer of Huawei Technologies, at the request of U.S. authorities for allegedly violating sanctions against Iran. The arrest, which was made on Dec. 1, comes as the U.S. has taken several steps to restrict the Chinese technology giant, trying to persuade international allies to do the same.
When stock-index futures reopened Thursday, the drop was so severe on S&P 500 futures that the Chicago Mercantile Exchange triggered circuit breakers to avoid worse losses. Those futures spiked down to 2,659, a drop of 1.9% before the CME stopped trading briefly to try to calm the market, said Chris Weston, head of research at Pepperstone.
China authorities reacted furiously, with the spokesperson of the Chinese Embassy in Canada demanding the release of the Huawei executive. “At the request of the U.S. side, the Canadian side arrested a Chinese citizen not violating any American or Canadian law,” said a statement on its website. Huawei itself said it was “unaware of any wrongdoing by Ms. Meng,” in a statement released on Twitter.
— Huawei Technologies (@Huawei) December 6, 2018
The latest development comes amid an already shaky backdrop for trade relations between the U.S. and China. Doubts surrounding the weekend trade moratorium at the G-20 summit between the two sides and ominous developments in the bond market drove sharp losses for stocks Tuesday.
Market participants are also paying following a Dec.5-6 meeting of the Organization of the Petroleum Exporting Countries in Vienna. Crude-oil prices renewed their descent after the Saudi energy minister proposed a smaller-than-expected cut to production, but added that the oil cartel hadn’t yet agreed to any production declines.
The recent 30% drop in oil prices from their October highs is being interpreted by some market participants as a sign of slowing global growth, given oil’s central role as an input for a range of economic activity.
What data and speeches are in focus?
Investors are also facing a heavy load of economic data Thursday:
- The private sector added 179,000 new jobs in November, according to payroll firm ADP, below consensus estimates of 195,000, according to FactSet.
- 231,000 Americans applied for jobless benefits in the week ending Dec. 1, according to the Labor Department, surpassing the 224,000 reading expected by economists polled by MarketWatch.
- The Labor Department also raised its estimate of third-quarter productivity growth to 2.3% from 2.2%, while unit labor costs rose 0.9%, less than the initially reported 1.2% climb.
- The Institute of Supply Management said a gauge of services sector in November climbed to 60.7%.
- The Commerce Department said factory orders fell 2.1% in November.
- At 12.15 a.m. Atlanta Fed Chief and FOMC member Raphael Bostic will give a speech on the U.S. economic outlook.
What are the strategists saying?
“There’s not much incentive to be heroic and step in here expecting some kind of rally in the next two weeks,” before we see liquidity dry up during the holiday season, Aaron Clark, portfolio manager with GW&K Investment Management told MarketWatch.
“There won’t be much fundamental news until earnings start up again in January, so whether markets move up or down in the next two weeks is a crapshoot,” he said, arguing that many investors will simply wait on the sidelines until they have more information that could help make “a rational case” for where markets are headed in 2019.
“Just when you thought it was safe to go back in the water,” lamented Joel Kulina, Wedbush Securities analysts in a note to clients, “First we get DJT’s “Tariff Man’ tweet on Tuesday, followed by the shocking news of Huawei global CFO arrest at the request of the U.S.,” he said, noting that this event has weighed heavily on markets Thursday morning.
The arrest is “clearly creating further uncertainty on global trade and how companies are positioning themselves for 2019,” he wrote.
“The timing of the arrest is key here. Markets are already incredibly nervous over slowing economic growth thanks to the inverted U.S. yield curve. Relations between the U.S. and China were supposed to be on the mend after a productive G-20. However, the arrest has the potential to shatter very fragile U.S.-Sino relations which will weigh further on global trade and growth concerns,” said Jasper Lawler, head of research at London Capital Group, in a note to clients.
And “despite recent heavy selloffs, the bottom isn’t in sight and the markets have further to fall. The big swings of late are representative of a very jittery market,” added Lawler.
Read: December historically is the most wonderful time of the year for stocks
What stocks are in focus?
Tech stocks were under pressure early Thursday, with Apple Inc. AAPL, -3.08% dropping 2.7% early Thursday, while Chinese internet firm JD.com Inc. JD, -1.54% is down 2% and Baidu Inc. BIDU, -1.00% has fallen more than 1%.
Semiconductor firms are also being dragged down, with Xilnix Inc. XLNX, -4.06% down 3.3%, Micron Technology Inc. MU, -1.49% down 1%, Broadcom Inc. AVGO, -4.91% off 3.8%, and Nvidia Corp. NVDA, -2.40% down 1.8%
Shares of Children’s Place Inc. PLCE, -15.87% are plunging more than 14% Thursday, hitting thirteen-month lows, after the retailer cut its earnings and margin outlook for the full year 2018.
Costco Wholesale Corp. COST, +0.54% stock is in focus Thursday, after the company reported fiscal fourth-quarter same-store sales rose 8.8%, above analysts estimates. The stock has risen 0.6%.
Shares of Sears Holdings Corp. SHLDQ, +7.69% are surging more than 6%, after Eddie Lampter’s ESL Investments Inc. placed a bid of $4.6 billion to purchase what remains of the retailer.
What are other markets doing?
Asian stocks fell sharply across the board, with the bulk of losses hitting tech stocks, and the Hong Kong Hang Seng Index HSI, -2.47% bearing the brunt of losses, dropping 2.5%. European stocks SXXP, -2.88% also traded lower across the board.
Benchmark U.S. crude CLF9, -4.05% is falling 4.4% to $50.59 a barrel, while the international benchmark, Brent crude LCOG9, -3.36% is down 3.5% to $59.38
Gold prices GCG9, +0.43% are rising 0.4%, and the ICE Dollar Index DXY, -0.32% is edging down 0.4%
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