Wall St on track for worst week in months amid growing downturn fears

Raindrops hang from a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York, New York, U.S., October 26, 2020. REUTERS/Mike Segar/File Photo

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  • FedEx earnings warning hits peers
  • The three main US indices are expected to see sharp weekly declines
  • Indices down: Dow 1.00%, S&P 1.36%, Nasdaq 1.67%

NEW YORK, Sept 16 (Reuters) – U.S. stocks fell to their lowest level in two months on Friday as a slowdown warning from FedEx accelerated investors’ flight to safety at the end of a tumultuous week.

All three major U.S. stock indexes slid to levels not seen since mid-July, with the S&P 500 dropping below 3,900, a closely watched level of support the benchmark has tested in recent weeks.

Marking the end of a week rocked by a witching brew of inflation worries, impending interest rate hikes and ominous economic warning signs, the S&P 500 is on course for its worst fall. weekly as a percentage since June.

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The Nasdaq is set to experience its biggest Friday-Friday decline since January, while October 2020 was the last time the blue-chip Dow suffered a steeper weekly decline.

Risk aversion sentiment went from simmering to boiling following FedEx Corp’s withdrawal of its earnings forecast Thursday night, citing signs of slowing global demand. Read more

FedEx’s move follows remarks from the World Bank and the IMF, both of which warned of an impending global economic slowdown. Read more

“In the background, what investors are concerned about is whether we’re going to have a recession or not,” said Tom Martin, senior portfolio manager at GLOBALT in Atlanta. “If we have a recession, we can expect a further decline in the stock market.”

A deluge of mixed economic data, dominated by a warmer-than-expected inflation report (CPI), cemented an interest rate hike of at least 75 basis points at the end of the monetary policy meeting in the Fed next week.

“The CPI wasn’t that far off expectations, but that means the Fed is going to stick to its rate hike path,” Martin added. “It will be interesting next week to compare the dot curve with what the futures markets are discounting.”

Financial markets on Wednesday priced a 14% chance of a 100 basis point hike in the target federal funds rate, according to CME’s FedWatch tool.

As of 2:17 p.m. ET, the Dow Jones Industrial Average (.DJI) fell 309.52 points, or 1%, to 30,652.3, the S&P 500 (.SPX) was down 52.93 points, or 1, 36%, to 3,848.42 and the Nasdaq Composite (.IXIC) fell 193.45 points, or 1.67%, to 11,358.90.

All 11 major sectors of the S&P 500 were down, with energy (.SPNY) and industrials (.SPLRCI) suffering the largest percentage declines.

Dow Transportation (.DJT), considered a barometer of economic health, fell 6.0%.

The decline was led by FedEx shares which fell 22.2%, the biggest drop in the S&P 500 and putting the company on track for its biggest one-day decline.

Peers United Parcel Service (UPS.N) and XPO Logistics (XPO.N) fell 4.8% and 5.3% respectively, while Amazon.com Inc (AMZN.O) fell 2.8% .

The session also marked the expiration of monthly options, which occurs on the third Friday of every month. Options hedging activity has amplified market movements this year, contributing to increased volatility.

The CBOE Market Volatility Index (.VIX), often referred to as the “fear index”, hit a two-month high, above a level associated with heightened investor anxiety. Read more

Falling issues outnumbered rising ones on the NYSE by a ratio of 5.47 to 1; on the Nasdaq, a 4.34-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 56 new lows; the Nasdaq Composite recorded 11 new highs and 336 new lows.

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Reporting by Stephen Culp; additional reporting by Devik Jain and Ankika Biswas in Bengaluru; edited by Grant McCool

Our standards: The Thomson Reuters Trust Principles.

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