Stocks Dip Ahead of Fed News; Oil Prices Drop

By Reuters
December 18, 2018 Updated: December 18, 2018

NEW YORK—Global equity markets dipped on Dec. 18 as nervous investors awaited indications whether the Federal Reserve will be able to raise interest rates much further amid turbulent markets and a weakening outlook for the global economy.

Energy stocks weighed on the U.S. market as oil price declines deepened.

Steep drops in equity markets over the last two months have sapped investor confidence, spurring fund managers to predict global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America Merrill Lynch’s December investor survey showed.

MSCI’s world stock index fell 0.3 percent. The index is down 10 percent this year and is set for its worst year in a decade.

The Dow Industrials and the Nasdaq posted slight gains, however, as shares of Boeing Co and the group of internet-focused momentum stocks known as FAANG rose.

The S&P 500 had risen as much as 1.1 percent earlier in the session but gave up most of its gains after U.S. Senate Majority Leader Mitch McConnell said Democrats had rejected his spending bill proposal. Without the passage of a spending bill, several government agencies are at risk of a shutdown.

Taking Stock

The benchmark index briefly turned negative in intraday trading to fall below Dec. 17 levels. On Dec. 17 the S&P 500 ended at a 14-month low.

S&P 500 energy stocks led the declines, falling 2.4 percent. U.S. crude prices tumbled more than 7 percent on concerns of oversupply. The S&P 500 posted no new 52-week highs and 87 new lows; the Nasdaq Composite recorded eight new highs and 523 new lows.

The Dow Jones Industrial Average  rose 82.66 points, or 0.35 percent, to 23,675.64, the S&P 500 gained 0.22 point, or 0.01 percent, to 2,546.16 and the Nasdaq Composite added 30.18 points, or 0.45 percent, to 6,783.91.

Stock quotation board outside a brokerage in Tokyo, Japan
A stock quotation board outside a brokerage in Tokyo, Japan on Nov. 13, 2018. (Toru Hanai/Reuters)

“The market tested yesterday’s lows and bounced back off of that level,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta. “Investors are getting squared up ahead of the Fed and ahead of a potential partial government shutdown.”

In addition to the looming government shutdown threat, investors prepared for the outcome of the two-day meeting of the Federal Open Market Committee, which began on Tuesday. Market participants widely expect the Fed to raise benchmark U.S. rates this month, but some investors anticipate that the U.S. central bank will indicate fewer rate hikes for 2019 than previously expected.

U.S. stocks eked out modest gains amid volatile trading as investors weighed strong tech earnings against concerns about global growth.

Volatile Times

Traders in the options market continued to expect increased stock market volatility in coming days. The Cboe Volatility Index, the most widely followed gauge of expected near-term gyrations for the S&P 500, finished up 1.06 points at 25.58, its highest close in 10 months.

Yet shares of Boeing Co rose 3.8 percent after three days of losses as the aerospace company said it was raising its dividend and increasing share buybacks to $20 billion from $18 billion.

Shares of Facebook Inc, Apple Inc, Inc, Netflix Inc and Google parent Alphabet Inc, collectively known as FAANG, gained between 1.3 percent and 3.1 percent.

Aside from Boeing, several other stocks ended a string of losses.

Goldman Sachs Group Inc shares rose 2.1 percent to snap a nine-day losing streak related to the 1MDB scandal.

Johnson & Johnson shares rose 1.0 percent after a nearly 13 percent drop over two days on a Reuters report that the company knew for decades that its Baby Powder contained asbestos.

Traders at New York Stock Exchange
Traders work on the floor of the New York Stock Exchange (NYSE) in N.Y. on Dec. 18, 2018. (Brendan McDermid/Reuters)

Declining issues outnumbered advancing ones on the NYSE by a 1.14-to-1 ratio; on Nasdaq, a 1.43-to-1 ratio favored decliners.

“We’re facing the biggest December fall in U.S. stocks since 1931 and this is striking and worrying at the same time,” said Chris Bailey, European strategist at international financial services firm Raymond James. “We are at a regime shift moment, and the debate is how big that regime shift will be.”

A speech by Chinese leader Xi Jinping, which investors had hoped could lift morale, had little impact after he offered no specific support measures for the economy. Chinese shares fell over 1 percent. Japan’s Nikkei lost 1.8 percent.

Adding to the gloomy mood, the German Ifo economic institute’s business climate index fell for the fourth month in a row to its lowest level in more than two years and Japan’s government revised down its economic growth forecasts.

Volume on U.S. exchanges was 9.18 billion shares, compared with the 8.06 billion-share average over the last 20 trading days.

Benchmark 10-year notes last rose 9/32 in price to yield 2.8264 percent, from 2.857 percent late on Dec. 17.

U.S. crude futures settled down 7.3 percent while Brent settled down 5.6 percent, weakening for a third consecutive session on reports of swelling inventories and forecasts of record U.S. and Russian output.

The dollar extended its declines against major currencies ahead of the Fed meeting. The dollar index, tracking it against six major peers, fell 0.03 percent, with the euro up 0.14 percent to $1.1362.

By David Randall and April Joyner