Dow tumbles 120 points and oil plunges 3% back below $50
Wall Street ended the week on a weak note Friday as oil tumbled and yields on global government bonds skidded amid looming political and economic headwinds that are pushing nervous investors away from risky assets.
The Dow Jones industrial average closed off its lows for the day but still lost 120 points, or 0.7%, to 17,865. The Standard & Poor's 500 index, which flirted with a new record high all week but has been unable to top its May 2015 peak of 2130.82, lost 0.9% to 2096. Heading into Friday's trading session, the benchmark large-company U.S. stock index was 15 points, or less than 1%, from a fresh record. The Nasdaq composite ended the day down 1.3%.
The storyline that gained the most attention Friday was the continued decline of government bond yields around the world. The yield on the 10-year German bund fell to a record low of 0.021% Friday. Government debt also fell to record lows in the U.K. and Japan, where 10-year government bonds are already trading in negative territory, at -0.153%.
The rush into bonds comes at a time when investors are worried about possible market disruptions due to political and economic uncertainties. Also pushing yields lower is the continued aggressive buying of bonds by the European Central Bank and other central bankers in an attempt to boost flagging economic growth.
Investors are warily watching an upcoming vote in Britain to see if the U.K. will vote to leave the 28-nation European Union. A so-called "Brexit" is viewed as a negative for markets. But polls that show rising odds of a Brexit are likely to weigh on investor sentiment.
An afternoon poll released in the U.K. by The Independent showed that 55% of 2,000 Brits polled said they believe the U.K. should leave the European Union, vs. just 45% who want Britain to remain in the EU.
"Bond yields are retreating as Brexit anxieties rise," Robert Sluymer, technical analyst at RBC Capital Markets, noted in an e-mail. Slowing growth around the globe continues to hurt sentiment, as well. Sluymer added that yields have been falling since last Friday's weak May jobs report put the Federal Reserve's interest rate hikes on hold for the time being.
The Fed's two-day meeting wraps up Wednesday, and investors will pour over the central bank's announcement for clues when an interest rate hike might be coming.
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Money also poured into U.S. government bonds, where the 10-year Treasury yield, which moves in the opposite direction of price, fell to 1.649% early Friday, its lowest level since an intraday low of 1.535% back on Feb. 11, the day the stock market reached a bottom after its worst start to a year ever.
Demand for U.S. government bonds is rising as yields in places like Germany and Japan fall to historic lows, making the U.S. 10-year note's 1.65% yield look plump by comparisn to the rock-bottom rates being paid out abroad.
U.S.-produced crude was down 3.0% to $49.05 and back below $50 per barrel following news that the U.S. rig count rose for the second week in a row. Baker Hughes said oil and gas rigs operating in the U.S. reached 414 this week, up 6 from a week earlier. Also weighing on energy prices was strength in the U.S. dollar, which was up 0.23% vs. a basket of foreign currencies.
The stock market's inability to get back over the record highs o
"Stocks have tried valiantly to make new all-time highs, but indexes haven't been able to crack those levels," Bespoke told clients in a note. But given that market breadth has been strong and most stocks are still in uptrends, the investment research firm said "we aren't particularly worried about an apocalyptic rollover. Butr a pause seems likely given the price action and a higher dollar, lower oil and potent event risk through the month of June."
Stocks in Europe were under pressure as investor risk aversion rises. The broad Stoxx Europe 600 index was down more than 2%.