NEW YORK – Financial markets got off to a rough start in October as disappointing economic news and Ebola fears drove stocks lower.
The Dow Jones industrial average slumped more than 200 points Wednesday, the first day of trading in a month known for big market swings. Nervous investors shifted their money to havens like bonds and gold.
At first U.S. stocks were driven lower by word that German manufacturing had slowed last month. The selling accelerated after a separate survey indicated U.S. manufacturing slowed as well.
“A lot of people thought this economic data was going to be robust, so when it was weak, everyone moved to reposition,” said Tom di Galoma, head of rates and credit trading at ED&F Man Capital.
Investors also were skittish following news that the first case of Ebola had been diagnosed in the U.S. They dumped airlines on concerns that travel will decline and bought a handful of drug companies working on experimental treatments for the deadly disease.
The blue chip Dow index lost 238.19 points, or 1.4 percent, to 16,804.71. The Standard & Poor’s 500 index lost 26.13 points, or 1.3 percent, to 1,946.16 and the Nasdaq composite lost 71.30 points, or 1.6 percent, to 4,422.09.
The declines follow a weak performance in September, just the third monthly loss for the stock market this year. Geopolitical worries, a weakening European economy and the prospect of higher interest rates have weighed on stocks, even though corporate earnings and the economic outlook remain healthy in the U.S.
The report that set off most of the selling in the U.S. was the Institute for Supply Management’s monthly manufacturing survey, one of the more closely watched economic indicators that investors look for each month. The ISM index came in at 56.6, below the 58.5 economists expected.
In Germany, Markit reported that manufacturing contracted in September, the latest sign that Europe is being affected by the economic sanctions on Russia. It was the first slowdown in 15 months.
The report came a day before Naples, Italy, hosts the European Central Bank’s latest policy meeting. Investors will follow closely what ECB President Mario Draghi says about possible stimulus from the central bank following recent weak economic news in Europe.
In European markets, Germany’s DAX finished 1 percent lower, France’s CAC 40 lost 1.2 percent and the U.K.’s FTSE 100 ended down 1 percent.
“We’re in a global economy these days, and U.S. companies get a lot of their revenue and earnings from outside the U.S.,” said Matthew Rubin, director of investment strategy at Neuberger Berman. “Investors have valid concerns that the European slowdown could hit companies’ bottom line.”
Traders moved quickly into U.S. government bonds. The yield on the 10-year Treasury note dropped to 2.39 percent from 2.49 percent late Tuesday, a big move. Gold prices rose $3.90, or 0.3 percent, to $1,215.50 an ounce.
Utility stocks, which investors favor during times of volatility because of their higher-than-average dividends, were among the few that rose Wednesday. The Dow Jones utility index, a collection of 15 utility companies, increased 0.4 percent.
Investors are looking ahead to today, when the U.S. government will release the monthly job figures. Economists are expecting that employers added 215,000 workers last month and no change in the unemployment rate, which stands at 6.1 percent.
Despite October’s bad start, analysts believe the next three months should be good for investors.
In recent years, the stock market has risen sharply in the last three months of the year. The S&P 500 rose 10 percent in the fourth quarter of 2013 and 11 percent in the same period in 2011. The index fell in the fourth quarter of 2012, but only by 1 percent.
“The reports were negative today, but most investors believe the U.S. economy is on solid footing and is still on track for a recovery,” Rubin said. “I still think it’s a good time to be an investor in the market.”
The S&P 500 index remains 3 percent below its all-time closing high from Sept. 18.
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.