Both the Dow and the S&P 500 posted their biggest one-day percentage drop since late June on Friday as rate hike fears dampened investor sentiment. The Nasdaq wasn't spared either, eventually closing in the red. Hawkish comments from Boston Fed President Eric Rosengren slammed equity markets. Oil prices also fell as fears of glut persisted, while investors remained nervous following a nuclear test by North Korea. For the week, all the three major indexes settled in the negative territory.
For a look at the issues currently facing the markets, make sure to read today's Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) tanked nearly 400 points, or 2.1%, to close at 18,479.91. The S&P 500 declined 53.49 points, or 2.5%, to 2,127.81. Rout in equities pushed both the Dow and the S&P 500 below their 50-day moving averages. Meanwhile, the tech-laden Nasdaq Composite Index closed at 5,125.91, losing 2.5%.
The CBOE Volatility Index (VIX) surged 39% to 17.50 on Friday, its largest one-day percentage jump since June 24. Even though only a reading above 20 is considered to be alarming, Friday's climb is significant, considering that the index was hovering near 12 for a sustained period. A total of around 8.5 billion shares were traded on Friday, higher than the last 20-session average of 6.1 billion. Decliners outpaced advancing stocks on the NYSE. For 94% stocks that declined, only 5% advanced.
Stocks Post Worst Fall Since Brexit
U.S. stocks suffered their worst decline on Friday since U.K.'s decision to leave the European Union. Rising possibility of a rate hike in the near term, thanks to hawkish comments from Eric Rosengren, led to such losses. Friday's slide indicated that the market isn't completely prepared for an imminent Fed rate hike, which could lead to further gyrations.
Eric Rosengren backed gradual interest rate hikes. He cautioned that waiting too long for a rate hike might adversely affect some asset markets like commercial real estate. Given the data he has received he believes that "a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy".
Defensive plays such as utilities led the losses on Friday. Higher interest rates aren't good for such stocks as it will increase cost of capital and decrease profitability (read more: 5 Utility Stocks to Beat the September Blues ).
The Utilities Select Sector SPDR (XLU) declined more than 3%. Key utilities stocks including NextEra Energy, Inc. ( NEE ) and Duke Energy Corporation ( DUK ) decreased 3.6% and 3.5%, respectively. Both these companies possess a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Fears of Glut Drags Oil Prices
The Energy Select Sector SPDR (XLE) also plunged close to 3% amid sharp drop in oil prices . WTI and Brent crude fell 3.8% and 4.1% to $45.88 per barrel and $48.01 a barrel, respectively. Oil prices fell on Friday as investors remain skeptic about a large drop in stockpiles on Thursday.
According to the U.S. Energy Information Administration, domestic crude inventories dropped 14.5 million barrel for the week ended September 02, the steepest fall since 1999. But, traders and money managers view such a large drop are mostly due to inclement weather that curtailed production and prevented imports into the U.S. Gulf Coast (read more: 5 Energy Stocks to Buy with Incredible Momentum ).
Weekly Round Up
For the week, the Dow, the S&P 500 and the Nasdaq declined 2.2%, 2.4% and 2.4%, respectively. Fresh signs that the Fed could back away from easy-money policy along with slump in oil prices led the selloff. Additionally, the European Central Bank (ECB) keeping interest rates unchanged and refrained from announcing additional stimulus measures also disappointed investors.
Stocks that Made Headlines
Ballard Power Systems Inc. ( BLDP ) announced that it signed an agreement with Shenzhen UpPower Technology Co., Ltd for the supply of 10 FCveloCity-MD 30-kilowatt fuel cell power modules. ( Read more )
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