The major domestic equity indexes ended the day on Monday with red ink in a volatile session that had the S&P 500 index ending just shy of confirming its second correction of 2018, hurt by fresh worries of an escalation of U.S.-China trade tensions and a sharp decline in big tech and internet names.
Following a morning rally, the major indexes pulled back steeply after a Bloomberg report that there will be an announcement shortly placing tariffs on all remaining Chinese imports by early December if talks next month between presidents Donald Trump and Xi Jinping falter.
After the S&P 500 dropped more than 10 percent from its Sept. 20 record closing high during the session, the benchmark index pared its losses late to end the trading day down 9.9 percent from its peak. The Dow Jones Industrial Average also fell more than 10 percent from its Oct. 3 record close during the session, before ending down 8.9 percent from the mark.
Stocks, such as Amazon, Alphabet and Netflix posted sharp declines. The S&P 500 technology sector index fell 1.8 percent.
The so-called FANG stocks overall lost more than $200 billion in market value in the past two sessions.
The industrials sector index, which is seen as sensitive to trade issues, fell 1.7 percent, with Boeing down 6.6 percent.
Market volatility has spiked in recent weeks, stemming from higher interest rates and worries about economic growth peaking and trade tensions. There is also increasing nervousness regarding uncertainty surrounding the upcoming elections, now just a week away.
Internet stocks also may have been wounded by Britain’s plan to tax the revenue from online platforms.
In corporate news, shares of Red Hat rose 45.4 percent after the company agreed to be bought by IBM for $34 billion. IBM fell 4.1 percent, weighing on the Dow and S&P.
Investors who are bullish about stocks point to strong corporate profits this year and economic growth, but there are also concerns about the extent of a slowdown in earnings growth next year, while weak housing data has raised some worries about the consumer.
Data on Monday showed consumer spending rose for a seventh consecutive month in September, but income recorded its smallest gain in more than a year amid moderate wage growth, suggesting the current pace of spending was unlikely to be sustained.
Approximately 9.3 billion shares changed hands on the major domestic equity exchanges, a number that was above the 8.5 billion share daily average over the past 20 trading days.
Consumer Spending Rises
Consumer spending rose for a seventh straight month in September, but wages recorded their smallest gain in more than a year on moderate growth, suggesting the current pace of spending was unlikely to continue.
The Commerce Department indicated on Monday that the increase in disposable income was the smallest in 15 months and savings declined to their lowest level since December of last year.
There are signs the stimulus from the Trump administration’s $1.5 trillion tax cut package has peaked. Higher interest rates and falling household wealth after a sharp stock market selloff are also casting a dark shadow.
Consumer spending, which accounts for more than two-thirds of all domestic economic activity, increased 0.4 percent last month as households bought more motor vehicles and spent more on health care.
Data for August was revised up to show spending advancing 0.5 percent instead of the previously reported 0.3 percent gain.
When adjusted for inflation, consumer spending rose 0.3 percent. The so-called real consumer spending climbed 0.4 percent in August.
The data was included in last Friday’s third-quarter gross domestic product report, which showed consumer spending accelerating at a 4.0 percent annualized rate, the fastest in nearly four years.
The economy grew at a 3.5 percent rate in the third quarter, a slowdown from the April-June period’s robust 4.2 percent pace.
The rise in real consumer spending in September set it on a solid growth path heading into the fourth quarter. However, look for consumer spending to slow in the first half of 2019.
Personal income rose 0.2 percent last month, the smallest increase since June 2017, after gaining 0.4 percent in August. Disposable income also increased 0.2 percent. Wages climbed 0.2 percent after jumping 0.5 percent in August.
Wage growth remains gradual despite the unemployment rate being near a 49-year low of 3.7 percent. The saving rate fell to $975.7 billion last month, the lowest level since December 2017, from $1.0 trillion in August.
For now, the fundamentals for consumer spending are strong, with consumer confidence at multi-year highs.
In September, spending on goods surged 0.6 percent. Consumers also spent more on sporting goods. Outlays on services gained 0.3 percent, with spending on health care offsetting a decrease in spending at restaurants and on accommodation.
Prices continued to rise steadily in September. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 percent after being flat in August.
That left the year-on-year increase in the so-called core PCE price index at 2.0 percent for a fifth straight month. The core PCE index is the Federal Reserve’s preferred inflation measure. It hit the Fed’s 2 percent inflation target in March for the first time since April 2012.
The Fed is expected to raise interest rates again in December despite tightening financial market conditions brought about by the stock market drop and a rise in Treasury yields.
The central bank has removed a reference to monetary policy remaining “accommodative” from its policy statement.