- S&P 500 sinks 2.2% in five days, pushes year drop to 8%
- Crumbling crude, concerns over economic growth spur selling
The cost of being a bull on New Year’s has never been higher.
Ten days into 2016 and the Standard & Poor’s 500 Index has dropped 8 percent, careening lower for a third straight week to reach the lowest close since August. The index is off to the worst start on record and just capped a three-day stretch that by one measure was its most volatile in four years.
Plunging crude oil prices fueled a flight from risk assets around the world amid mounting concern China’s policy interventions won’t revitalize growth. At the same time, the Federal Reserve is tightening monetary policy. The result has been day-after-day reversals in the S&P 500, which tallied its two biggest slides since September along with its best rally in six weeks. The vertigo hasn’t been worse since S&P downgraded U.S. sovereign debt in August 2011.
“The market’s move is a reaction to continued pressure on Chinese equities, continued weakness in oil and softer than expected economic data in the U.S,” said Howard Ward, who oversees $42.7 billion as the chief investment officer of growth equities at Gamco Investors Inc. “That said, the selling is indiscriminate. Every sector and nearly every stock is under real pressure. Across the board selling, in other words. No place to hide.”
The S&P 500 fell 2.2 percent to end the five days at 1,880.29, the lowest since Aug. 25. The Dow Jones Industrial Average tumbled 358.37 points, or 2.2 percent, to 15,988.08. The Russell 2000’s slide left it 22 percent below its June record, while the Nasdaq Composite Index ended at the lowest level since October 2014.
Benchmark indexes battled to a draw in the week’s first four days, as investor sentiment ricocheted from negative to positive and back again, tracking developments in China and the oil patch. A weaker-than-expected retail sales report on Friday eliminated the possibility of a gain in the five days, as evidence mounted that slowing overseas growth may negatively impact the world’s largest economy.
Volatility remained elevated, as the Chicago Board Options Exchange Volatility Index ended at 27.02, 60 percent higher than its one-year average of 16.85. The measure of price swings is higher by 48 percent this year, though it sits about 15 points from an almost four-year high reached during the August stock market correction.
Nine of the S&P 500’s 10 main sectors retreated, with materials producers falling 4.4 percent to pace declines. Commodities fell to the lowest level in at almost 14 years, as crude in the U.S. fell below $30 for the first time since 2004.
Better than expected earnings reports weren’t enough to provide a boost to financial companies that are expected to be among the beneficiaries of the Fed’s first interest rate hike in almost a decade. Citigroup Inc. plunged 7.9 percent, bringing its loss this year to 18 percent, after saying Friday 2016 will be “difficult.” JPMorgan Chase & Co. lost 3.2 percent, while Legg Mason Inc. and Morgan Stanley fell more than 8.5 percent.
Energy shares yo-yoed in the period to finish lower by 2.1 percent for the sixth weekly decline in the past seven. The index sandwiched a 4.5 percent rally on Thursday with declines of more than 1.7 percent as oil seesawed to an 11 percent slide.
Weakness in equities wasn’t limited to the U.S. The Shanghai Composite Index slipped 9 percent for the week to the lowest since December 2014, while Europe’s Stoxx 600 Index lost 3.4 percent, bringing its decline from an April record to more than 20 percent, pushing it into a bear market. An index of emerging-market equities compiled by MSCI fell 4.5 percent to an almost six-year low, while its all-world index dropped 2.7 percent.
The S&P 500 didn’t get much help from momentum stocks, defined as the ones showing the biggest gains in the last six to 12 months. Out of the 101 companies in the Powershares DWA Momentum Portfolio, a $1.7 billion exchange-traded fund, 88 fell for the week. The ETF declined 2.5 percent over the five days.
It’s a far cry from 2015, when momentum investing returned 32 percent, making it the single best stock trading strategy for quantitative funds, according to data compiled by Evercore ISI and Bloomberg.