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Concerns About Global Economy Lead To Sell-Off On Wall Street - U.S. Commentary

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Following the lackluster performance in the previous session, stocks moved sharply lower over the course of the trading day on Friday. The Dow and the S&P 500 tumbled to their lowest closing levels in seven and eight months, respectively.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow plunged 496.87 points or 2 percent to 24,100.51, the Nasdaq nosedived 159.67 points or 2.3 percent to 6,910.67 and the S&P 500 plummeted 50.59 points or 1.9 percent to 2,599.95.

With the steep losses on the day, the major averages also moved lower for the week. The Nasdaq slid by 0.8 percent, while the Dow and the S&P 500 slumped by 1.2 percent and 1.3 percent, respectively.

The sell-off on Wall Street came amid renewed concerns about the outlook for global economic growth following the release of data showing disappointing industrial output and retail sales growth in China.

The latest batch of economic data showed Chinese industrial output grew at its slowest pace in nearly three years, increasing by 5.4 percent in November after growing by 5.9 percent a month earlier.

Meanwhile, retail sales in China grew 8.1 percent in November, the weakest growth since 2003. In October, retail sales were up 8.6 percent.

The slower pace of industrial output and retail sales growth was partly due to the impact of the ongoing trade dispute with the U.S.

President Donald Trump appeared to take credit for China's disappointing economic data in a post on Twitter on Friday.

"China just announced that their economy is growing much slower than anticipated because of our Trade War with them," Trump tweeted. "U.S. is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!"

Trump seemed to reference China's recently confirmed decision to temporarily lower tariffs on vehicles made in the U.S. to 15 percent from 40 percent.

A report showing growth in the eurozone private sector has decelerated to its slowest pace in more than four years in December added to the negative sentiment.

On the U.S. economic front, the Commerce Department released a report showing slightly weaker than expected retail sales growth in November due to a steep drop in sales by gas stations, although underlying retail sales growth remained strong.

The Commerce Department said retail sales edged up by 0.2 percent in November after spiking by an upwardly revised 1.1 percent in October.

Economists had expected retail sales to rise by 0.3 percent compared to the 0.8 percent increase originally reported for the previous month.

Meanwhile, the report said closely watched core retail sales, which exclude autos, gasoline, building materials and food services, increased by 0.9 percent in November after climbing by an upwardly revised 0.7 percent in October.

"Along with the continued strength of the labor market, the boost to real incomes from the recent plunge in gasoline prices appears to be providing a big support to spending growth, which could continue for a few more months," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "Nonetheless, with the earlier boost from tax cuts now fading and rising interest rates likely to become an increasing drag, we still expect consumption growth to slow next year."

A separate report from the Federal Reserve showed a much bigger than expected increase in industrial production in November, but manufacturing output was unchanged.

Sector News

Oil service stocks showed a substantial move to the downside on the day, extending a recent sell-off. The Philadelphia Oil Service Index plunged by 4.3 percent to its lowest closing level in fifteen years.

The continued weakness among oil service stocks came amid a steep stop by the price of crude oil, with crude for January delivery tumbling $1.38 to $51.20 a barrel.

Significant weakness was also visible among pharmaceutical stocks, as reflected by the 3.4 percent slump by the NYSE Arca Pharmaceutical Index

Johnson & Johnson (JNJ) posted a steep loss after a report from Reuters said the healthcare giant knew for decades that its talcum baby powder supply contained asbestos.

Natural gas, software, retail and gold stocks also saw considerable weakness on the day amid a broad based sell-off on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Friday. Japan's Nikkei 225 Index plunged by 2 percent, while Hong Kong's Hang Seng Index tumbled by 1.6 percent.

The major European markets also moved to the downside on the day. While the French CAC 40 Index slumped by 0.9 percent, the U.K.'s FTSE 100 Index and the German DAX Index both fell by 0.5 percent.

In the bond market, treasuries have moved higher amid their appeal as a safe haven. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 2 basis points to 2.891 percent.

Looking Ahead

News regarding U.S.-China trade talks may continue to impact trading next week, although traders are also likely to turn their attention to the Federal Reserve's monetary policy announcement next Wednesday.

With the Fed widely expected to raise interest rates by another quarter point, the central bank's accompanying statement and forecasts will be closely scrutinized for clues about future rate hikes.

The announcement by the Fed may overshadow several key economic reports on homebuilder confidence, housing starts, existing home sales, durable goods orders and personal income and spending.

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