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Dow closes 550 points lower, wiping out gains for the year

CNBC logo CNBC 12/7/2018 Fred Imbert


Stocks dropped sharply Friday, concluding a wild week on Wall Street. A weaker-than-expected jobs report and China-U.S. trade tensions sent the Dow Jones Industrial Average lower by 558 points and erased its gains for the year.

The S&P 500 pulled back 2.3 percent and also turned negative for the year once again. The Nasdaq dropped 3 percent. Shares of large-cap tech companies led the way lower. Facebook, Amazon, Netflix and Google parent Alphabet all traded lower. Apple's stock also fell 3.6 percent, erasing its gains for the year, after Morgan Stanley cut its price target on the tech giant's shares, citing weakening iPhone sales.

For the week, the major indexes all dropped more than 4 percent. Thursday's session included a violent drop of nearly 800 points, followed by a strong rebound from those levels.

Indexes fell to their lows of the day after the Wall Street Journal reported federal prosecutors are expected to bring charges against Chinese hackers. The hackers are linked to the Chinese government and were allegedly trying to break into technology service providers in the U.S.

The U.S. economy added 155,000 jobs last month. Economists polled by Dow Jones expected a gain of 198,000 jobs. Wage growth also missed estimates. But investors were torn about the data as it could signal fewer rate hikes from the Federal Reserve down the road.

"The report was solid, not great, but it is still enough to keep the pace on track," said Kate Warne, investment strategist at Edward Jones. She added, however, that volatility will persist as "investors are not sure about how much growth is slowing and are worried about U.S-China trade relations."

Investors worried about the U.S. and China striking a permanent deal on trade after news of the Huawei CFO's arrest broke. News of the arrest initially sent stocks down sharply on Thursday, but equities managed to recover most of their losses. This also came after President Donald Trump and Chinese President Xi Jinping agreed last weekend on a cease-fire to the ongoing U.S.-China trade conflict, which sent stocks sharply higher on Monday.

"You've gone from a period of zero sensitivity to headlines to a period of hypersensitivity," said James Athey, senior investment manager at Aberdeen Standard Investments. "We're now in a world where no one knows which way is up and which way is down."

Investors also grappled with fears of an economic slowdown this week. The yield on the 3-year Treasury note yield broke above its 5-year counterpart earlier in the week, a phenomenon referred to as an inversion. Historically, when short-term yields move above longer-term rates, it signals a recession could arrive in the near future. However, the more closely watched spread between 2-year and 10-year yields has yet to invert.

Worries over the economy come ahead of a Federal Reserve meeting later this month where the central bank is largely expected to raise rates. But fears of further rate hikes after this month were somewhat quelled after the Wall Street Journal reported the central bank is considering whether to signal a wait-and-see approach to rate hikes at its upcoming meeting this month.

The report said Fed officials do not know what their next move on rates will be after December. As a result, The Dow closed 79.40 points lower on Thursday after plunging nearly 800 points earlier in the day.

"Unfortunately, we still have to work through this volatility," said Tom Essaye, founder of The Sevens Report. "Between now and the end of the year, there are two big hurdles: First, the Fed needs to do a dovish rate hike. The market can't survive a hawkish surprise. Also, we need some semblance of calm on the global trade front."


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