Dow drops more than 300 as U.S. oil under $36 a barrel
The stock market capped off its worst week since August Friday as oil prices set a new seven-year lows and investors braced for the increasing certainty that the Federal Reserve will boost short-term interest rates next week.
The Dow Jones industrial average fell 309.54 points, or 1.8%, to 17,265.21, with Goldman Sachs (GS) and DuPont (DD) as its biggest decliners.
The Standard & Poor's 500 index fell 1.9% to 2012.37. And the Nasdaq composite index lost 2.2% to 4933 for its first close below 5000 in nearly a month.
DuPont shares fell $4.10, or 5.5%, to $70.45 as investors reacted to the $68.6 billion buyout by Dow Chemical, which is the fifth largest deal of the year, says Dealogic. Goldman Sachs is off $5.55, or 3.1% to $176.56 as investors in the financial sector prepare for higher short-term interest rates.
Bad omen: Junk bonds are getting trashed
Investors are interpreted the selloff in oil prices as a harbinger of weak economic demand. A barrel of U.S. oil lost 3.5% to about $35.50, a level last seen in early 2009. Weak oil prices are hammering the profits of energy companies, which are a big component of the S&P 500 companies' total profits.
The junk bond market also unnerved investors. Worries about falling prices of high-yield debt is raising another concern for investors. The SPDR Barclays High Yield Bond exchange-traded fund lost 2.0% Friday.
The market has grown increasingly volatile as investors look ahead to next week's meeting of the Fed's policy-making committee and what the central bank has signaled will likely bring its first interest rate hike in nearly a decade. Record-low interest rates near 0% have been one of the major fuels for the bull market in stocks, which is now well into its seventh year.
Investors' top concern is that companies are going to have increasing difficulty growing, says Jack Ablin of BMO Private Bank. Investors sent shares of both Dow Chemical and DuPont lower as they see it more of a "defensive move to guard against slowing growth," he says. All the "financial cartwheels" companies are using, ranging from buybacks to mergers, are becoming less important to investors who are concerned that real economic expansion is slowing. Weak oil prices – an indication of falling demand — underscore investors' concern about growth, he says.
"Growth concerns are real," he says. "Companies are using their balance sheets to prop up weak income statements."
Friday's losses capped off a nasty week -- the ugliest since the summer. The S&P fell 3.8% for the worst weekly performance for the U.S. benchmark index since the week ended August 21.
The Dow and S&P also are sinking deeper into the red for 2015. The Dow is down 3.1% for the year and the S&P is off 2.3%. And the Nasdaq, which has been the 2015 standout among the big three U.S. indexes, is seeing its year-to-date gain bleed away, down to 4.2%.
Matt Krantz on Twitter: @mattkrantz.
Ed Brackett on Twitter: @BrackSnacks.