Stocks in the U.S. slumped at the end of the week, including a dive of 318 points for the Dow Jones Industrial Average, as traders caved in to worries about global stability and the health of various economies. Many major markets in Europe and Asia also closed lower.
Concerns about weak growth in China — a critical market for Western trade — melded with currency drops in countries such as Turkey, prompting investors to flee from stocks, which are viewed as riskier than bonds or gold. The S&P 500, a broad measure of the American market, lost 2.1% to 1,790 Friday, and the Nasdaq Composite slid 2.2% to 4,128. On both the Nasdaq and the New York Stock Exchange, about 85% of all stocks declined.
Among the Dow's 30 members, only three escaped the session with gains — Merck (MRK), Microsoft (MSFT) and Procter & Gamble (PG). General Electric (GE), 3M (MMM) and Boeing (BA) were three of the hardest hit, each falling around 3%. The last time the Dow had a single day that was worse came on June 20, when it gave up 354 points, FactSet data show. On Thursday the index skidded 176 points, so its two-day loss is now 494 points, taking it to 15,879.
During the multiyear rally stocks have experienced following the 2008 financial crisis, U.S. markets have had occasional pullbacks driven by normally short-lived panics, like Greece. Ultimately, that didn't stop the S&P or Dow from reaching all-time highs in 2013. However, because of the length and scope of the rise in stocks, each successive pause leads more and more market participants to wonder whether the market might finally be entering a significant weak spot or correction.
Previously, those anxieties have been unfounded, as the tepid recovery in the U.S. has ensured the Federal Reserve has kept rates extremely low while continuing to supply funds to the market with the massive purchases of wounded bonds in its quantitative easing programs.
The Wall Street Journal did cite traders who contended the slide was more a result of "short-term players selling baskets of stocks, such as index futures or exchange-traded funds, as a way to protect against losses elsewhere in their portfolios." These traders told the paper they didn't believe investors with longer time horizons were exiting the market in great numbers. The idea that the Fed and other central banks will be making moves to rein in their stimulus efforts in the not-too-distant future also contributed to the unease.
Janet Yellen is only days away from taking over as Fed chair from Ben Bernanke, though experts don't believe she's likely to push for rapid, significant changes to the bank's policies, at least in the early going of her tenure.