US stocks suffer 2nd straight rout on Fed, government shutdown fears

Traders work on the floor of the New York Stock Exchange on Dec 19, 2018.
Traders work on the floor of the New York Stock Exchange on Dec 19, 2018.PHOTO: REUTERS

NEW YORK (REUTERS) -  U. stocks slid on Thursday (Dec 20), with the Nasdaq on the cusp of confirming bear market territory, as the Federal Reserve's plan to continue its balance sheet reduction and the threat of a partial government shutdown fueled investor anxieties.

At its session low, the Nasdaq had tumbled 2.85 per cent, pushing the tech-heavy index more than 20 per cent below its Aug 29 closing high. The index, along with the Dow and the benchmark S&P 500, pared losses as the session continued. The Nasdaq ended down 19.5 per cent from its closing high, just shy of confirming a bear market.

In evidence of the mounting bearish sentiment, US-based stock mutual funds and exchange-traded funds are set for their worst month of net withdrawals on record, according to Lipper data released after Thursday's market close. Investors pulled nearly US$34.6 billion from US-based stock funds in the most recent week.

The Fed's move on Wednesday to largely adhere to its plan for more rate hikes over the next two years and keep its balance sheet reduction plan on "autopilot" spooked investors already worried about slowing economic growth.

"This is primarily just a follow-through from yesterday's selling," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "The market is just upset about the whole aspect of balance sheet normalization."

Adding to the gloom was the possibility of a partial US government shutdown on Friday. President Donald Trump told Republican congressional leaders he will not sign a government funding bill because it fails to include enough funding for border security.

"For 2019, I suspected there was going to be antagonism between the House (of Representatives) and the White House," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago. "This is only a partial government shutdown, but if (Trump) is going to be obstinate, that's not a good sign for next year."

The Dow Jones Industrial Average fell 464.06 points, or 1.99 per cent, to 22,859.6, the S&P 500 lost 39.54 points, or 1.58 per cent, to 2,467.42 and the Nasdaq Composite dropped 108.42 points, or 1.63 per cent, to 6,528.41.


Thursday's trading volume was the second-highest of the year, at 12.09 billion shares, compared with the 8.38 billion-share average over the last 20 trading days.

Of the S&P's 11 major sectors, only utilities ended in positive territory. Energy stocks slid 2.8 per cent as oil prices dropped to their lowest levels in a year.

Technology and consumer discretionary stocks - among the top contributors to Wall Street's gains in the past few years - registered heavy declines.

Gloomy corporate results and forecasts also weighed on US stocks.

Shares of Walgreens Boots Alliance Inc dropped 5.0 per cent on the drugstore chain's weak retail sales, while shares of Conagra Brands Inc slid 16.5 per cent after the packaged foods maker gave an underwhelming profit forecast for 2019.

Also declining as a result of disappointing corporate earnings forecasts were shares of Accenture Plc and Carnival Corp, which fell 4.9 per cent and 9.5 per cent, respectively.

Nike Inc shares dropped 2.1 per cent ahead of the athletic footwear company's quarterly results. In after-hours trading, however, Nike shares surged more than 7 per cent following the company's report.

Declining issues outnumbered advancing ones on the NYSE by a 3.97-to-1 ratio; on Nasdaq, a 3.41-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 175 new lows; the Nasdaq Composite recorded three new highs and 858 new lows

The revived possibility of a shutdown worsened the downbeat mood on markets after the Federal Reserve announced another interest rate hike on Wednesday and made only subtle adjustments to the course of monetary policy tightening next year despite rising worries about global growth and a big pullback in the stock market.

Analysts also said the US indictment of two Chinese hackers tied to Beijing's security services reminded investors of the unsettled state of US-China trade relations.

"We have a trade war, the economy weakening, and now the possibility of a shutdown," said Peter Cardillo of Spartan Capital Securities. "All that is feeding by itself."