Stocks Stage Recovery After Dow Drops Over 700 Points
By Jessica Menton and David Hodari
The Dow Jones Industrial Average tumbled as much as 785 points Thursday before sharply paring those losses in the final hour of the session, another example of the volatility that has rocked markets since the start of the fourth quarter.
Major indexes opened modestly lower and continued falling throughout the morning as the arrest of a top Chinese technology executive and a decline in oil prices exacerbated recent concerns about global growth.
But stocks pared their declines after The Wall Street Journal reported Federal Reserve officials are considering whether to signal a new wait-and-see mentality after a likely interest-rate increase at their meeting in December, which could slow down the pace of rate increases next year.
The blue-chip index fell 79 points, or 0.3%, to 24948, and the S&P 500 lost 0.2%. Both indexes are modestly higher for the year, after briefly sliding back into the red for 2018 earlier in the day.
The Nasdaq Composite added 0.4%, bringing the technology-heavy index's gains for 2018 to 4.1%.
U.S. investors were awaiting a speech later Thursday from Federal Reserve Chairman Jerome Powell, which will be scrutinized for signals related to the central bank's interest-rate policy. Officials still think the broad direction of short-term interest rates will be higher in 2019, the Journal reported pointing to recent interviews and public statements. But as they push up their benchmark, they are becoming less sure how fast they will need to act or how far they will need to go
While CME data gave a 76.6% probability of a rate increase at the Fed's December meeting, figures show a less clear consensus for 2019, reflecting estimates of just over one rate raise. But some analysts see that as an overly dovish forecast.
Investors will turn their attention to Friday's highly anticipated employment report. Economists surveyed by The Wall Street Journal expect employers added 198,000 jobs during November and unemployment held at 3.7%.
Economists expect a further acceleration in average hourly earnings, estimating wages advanced 3.2% for the month from a year earlier. Hourly wages rose 3.1% in October from a year earlier, the best annual growth rate since 2009.
Eight of the 11 sectors in the S&P 500 fell. Caterpillar and Apple, which are sensitive to trade-related headlines, fell at least 1.5%. And Chevron and Exxon slumped more than 2% as U.S. crude-oil prices resumed their slide, falling 2.6%.
"Everything feels out of control right now," said Michael Antonelli, equity sales trader at R.W. Baird & Co. "Clients are starting to get more jittery."
Markets started the week on a high note after President Trump reached a 90-day trade truce with his Chinese counterpart over the weekend, but that optimism turned to caution Tuesday, when the Dow industrials plunged nearly 800 points on renewed fears about the pace of economic growth.
U.S. markets were closed Wednesday for a national day of mourning for President George H.W. Bush.
The arrest of Huawei Technologies' chief financial officer in Canada over alleged violations of sanctions on Iran fanned fears of another escalation in tensions between the world's two largest economies.
Market reaction to the arrest threw into sharp relief the obstacles that lie ahead for negotiators in Washington and Beijing.
"Markets were already under pressure, and the arrest hasn't helped," said Neil Mellor, senior currency strategist at BNY Mellon. "We're back to where we were beforehand, and we're wondering if a deal's possible given how high the stakes are."
Tech firms have been among those worst hit by icy trade relations between the U.S. and China, weighing on global markets and prompting fears of slowing global growth.
Even so, some wealth-management professionals are sticking with technology. Ron Weiner, managing director and partner of RDM Financial Group at HighTower, is advising clients that stocks are still a long-term value, specifically technology and health-care shares, over defensive-oriented sectors such as consumer staples.
"If my choice is to buy Apple or Clorox, I'm staying in Apple," Mr. Weiner said, adding that buying defensive stocks right now might feel safe, but technology companies, including Intel and Microsoft, still pay a decent dividend. "When you're in the middle of this kind of turmoil, it's hard to think, but this is exactly when you need to stay steady, look over the horizon and wait."
U.S. Treasury yields continued slumping. The yield on the benchmark U.S. 10-year Treasury note settled at 2.872%, from 2.921% late Tuesday. Yields move inversely to prices.
U.S. government bonds are on the edge of a yield-curve inversion, in which shorter-dated bonds yield more than longer-dated ones. An inverted curve is often interpreted as a signal of a looming recession.
Michael Arone, chief investment strategist for State Street Global Advisors, shook off recession fears, saying that even though earnings growth for S&P 500 companies is expected to slow next year, he still expects earnings-per-share growth of 9% year over year.
"The U.S. has never had a recession when U.S. corporate profits have been growing," Mr. Arone said. "So although the backdrop is shifting somewhat from a higher growth regime to a lower growth regime, it's too early to call the end of the bull market."
Mr. Arone said that as long as Friday's wage figures don't significantly accelerate, the markets will likely respond positively because it may ease inflation worries.
Meanwhile, U.S. crude fell 2.6% to settle at $51.49 a barrel after Saudi Arabia's oil minister said there had yet to be any agreement made over oil output cuts. Still, market participants were expecting an agreement to emerge in Vienna, where the Organization of the Petroleum Exporting Countries and its allies were scheduled to meet Thursday and Friday.
Bleak sentiment in the U.S. echoed that in Europe, where the Stoxx Europe 600 index slid 3.1%. Losses were heavy in Asia, where Japan's Nikkei 225 fell 1.9% and China's Shanghai Composite dropped 1.7%.
Mike Bird contributed to this article
Write to Jessica Menton at Jessica.Menton@wsj.com and David Hodari at David.Hodari@dowjones.com