U.S. stocks on Friday suffered the worst slide since the U.K.’s surprise decision to exit from the European Union, as hawkish comments from Federal Reserve officials slammed bond and equity markets.
The Dow Jones Industrial Average (DOW:DJIA) closed down 394.46 points, or 2.1%, at an intraday low of 18,085.45, with all 30 blue-chip companies in the red, led lower by 3.3% drops in shares of Verizon Communications Inc. (NYS:VZ) , Boeing Co. (NYS:BA) , and Caterpillar Inc. (NYS:CAT) .
The S&P 500 index (S&P:SPX) plunged 53.49 points, or 2.5%, to close at its intraday low of 2,127.81 with all 10 main sectors finishing lower. So-called defensive sectors—utilities and telecoms, which both finished off more than 3%—led the losses, while energy shares declined 2.8% amid a steep drop in crude-oil futures. Oil prices (NYM:CLV26) settled down 3.7% at $45.88 a barrel and
eanwhile, the Nasdaq Composite Index (AMERICAN:COMP) shed 133.57 points, or 2.5%, to close at an intraday low of 5,125.91.
For the broader market, it was the worst session since June 24, when the Dow industrials cratered 3.4%, the S&P 500 plunged 3.6% and the Nasdaq Composite unraveled by 4.1%.
On Friday, the S&P 500 and the Dow fell below their 50-day moving averages.
Friday’s broad selloff puts the Dow industrials at a weekly loss of 2.2%, the S&P 500 at a 2.4% loss, and the Nasdaq at a 2.4% decline. For the month to date, the Dow is 1.7% lower, the S&P 500 is off 2%, and the Nasdaq down 1.7%.
Comments from Boston Fed President Eric Rosengren—a voter this year on the Fed’s interest-rate setting board—helped to contribute toe the selloff. He said on Friday that the U.S. central bank could resume gradual rate increases as the risks facing the economy are more in balance, reigniting Wall Street’s fears about the end of easy-money policies.
Rosengren’s comments drove the U.S. dollar (IFUS:DXY) firmly higher, while the yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) jumped to levels not seen since before the U.K. referendum, known as Brexit.
A sharp jump in Wall Street’s fear gauge, the CBOE Volatility Index (845:VIX) , which surged by 39% to 17.50, highlighted the worries on the day. The VIX marked its largest one-day jump since June 24, and hit its highest level since June 28.
On the New York Stock Exchange, 19 stocks declined for each one advancing, with 98% of the session’s volume contributing to the selloff.
Wall Street losses followed declines for European (STOXX:XX:SXXP) and Asian markets, which were unsettled by North Korea’s confirmation that it has successfully carried out a fifth nuclear test.
“When the market is near its top—as this market has been—any piece of bad news will results in a selloff,” said Thomas Siomades, head of Hartford Funds Investment Consulting Group.
Some analysts think that a rate increase by the Fed in September could be greeted positively by the market.
“If the Fed does it for the right reasons—that the economy is on solid footing—then, markets would welcome a rate increase,” said Joe Saluzzi, partner at Themis Trading.
Other market participants suggested that investors are losing confidence in the effectiveness of monetary policy.
On Thursday, the European Central Bank held its interest rates pat and opted not to expand its quantitative-easing measures, which disappointed Wall Street.
“With the ECB’s inaction sparking fears that central banks have lost confidence in the benefits of further monetary easing, Wall Street could find itself vulnerable to steeper losses,” said FXTM Research analyst Lukman Otunuga in a note.
Other central-bank talk: Fed Gov. Daniel Tarullo, who’s viewed as dovish on monetary policy, said he couldn't rule out a rate increase this year, but would like to see more inflation, during an interview on CNBC.
Fed officials will gather on Sept. 20-21 to set interest rate policy, and the quiet period before that meeting begins Tuesday.
Corporate docket: Home builder Hovnanian Enterprises Inc . (NYS:HOV) shares closed down nearly 13% after disappointing results and a lowered outlook.
Restoration Hardware Holdings Inc. (NYS:RH) shares advanced 3.1% after the home-furnishings retailer posted better-than-expected quarterly sales and per-share earnings late Thursday.
Lexicon Pharmaceuticals Inc. (NAS:LXRX) shares rallied 17%, as the company reported positive results from a late-stage trial of a treatment for Type 1 diabetes.
Finisar Corp. shares jumped 13% as networking company late Thursday posted earnings that surpassed expectations.
A review deadline for the proposed merger between Dow Chemical Co. (NYS:DOW) and DuPont Co. (NYS:DD) by the European Union’s antitrust regulator has been suspended. The regulator said the companies haven’t submitted important information demanded of them. Shares of both companies fell nearly 2%.
Logistics company CAI International Inc. (NYS:CAI) shares fell 5.2% as the company expects its exposure to the bankruptcy of South Korean shipping company Hanjin Shipping Co. Ltd will be about $2.6 million.
Other markets: Asian stocks dropped, with South Korea’s Kospi (KOREA:KR:180721) falling 1.3% as investors took in North Korea’s nuclear test. Gold futures settled down 0.5% at $1,334.50 an ounce, as the ICE U.S. Dollar Index (IFUS:DXY) climbed 0.4%.
North Korea Nuclear Test Is Its Biggest Yet, Seoul Says
North Korea confirmed it had conducted a nuclear test—its fifth since 2006—after South Korea's seismic monitoring agency detected an earthquake that was more powerful than those linked to the North's earlier tests. Photo: AP
<STRONG>—Carla Mozee in London contributed to this article.</STRONG>