The Dow fell 370 points in the closing hour, after rising as much as 394 points earlier in the morning. The S&P 500 fell 1.9%, and the Nasdaq plummeted 2.9%.
Technology stocks fell Friday on continued negative sentiment about the US-China trade relationship, regulation and a general adversity to risk. Facebook (FB) fell 7%, Apple (AAPL) fell 4%, Twitter (TWTR) was down 7% and Netflix (NFLX) fell 6%.
All three major indexes are down sharply on the week and more than 10% in December. Through Thursday, the Dow had lost 1,240 points this week and 2,679 points in December. Stocks are on pace for the worst December since the Great Depression, and the Nasdaq briefly entered a bear market Thursday before tumbling back there Friday.
Oil, the Russell 2000, the Dow transports index, and stock markets in China, Italy, Germany, Japan and South Korea are all in bear markets, too.
Investors are worried about the prospect of a global economic slowdown. Political chaos from Brexit, a looming US government shutdown and the resignation of US Defense Secretary James Mattis are stoking fear, too. And the Federal Reserve added to those concerns this week by signaling that its rate-increase plan will continue into 2019 despite downgrading its economic growth forecast.
“We see slowing economic and earnings growth and a carousel of concerns,” said Keith Lerner, chief market strategist at SunTrust, in a note to investors Friday.
But investors have some reason for optimism. The S&P 500 is trading at just 14.5 times next year’s expected earnings. That’s far lower than the historical average of 16 times earnings, suggesting that the sell-off has been overdone. Stocks are cheap, presenting buying opportunities for smart investors willing to take on a bit of risk.
A temporary moment of excitement
The stock market took off early Friday after New York Federal Reserve President John Williams told CNBC that the Fed will remain flexible about its rate-raising and balance sheet policy if the markets take a turn for the worse.
“We would use all available tools” if the economy got significantly worse, Williams said, though he didn’t predict the economy would turn south and pledged the Fed would “take the right policy decision to keep this economy strong.”
“We’re going to go into the new year with eyes wide open,” he said. “The market is telling us pretty clearly there are these downside risks we need to be attuned to.”
Williams acknowledged that the Fed now predicts somewhat slower economic growth than it had in the past, but he said the believes the market’s selling is overdone.
But fear is the predominant emotion guiding Wall Street, and a small bit of bad news could be enough to tip the scales once again — such as worries about the tech sector.