Stocks have just five more trading days left in 2018 to try and recuperate losses for the year.
The Dow (^DJI) fell to a 14-month low on Thursday, tumbling 464 points to 22,859.6. The Nasdaq (^IXIC) dipped into bear market territory at the lows of the session. The S&P 500 (^GSPC) fell 1.58%, led by declines in the energy sector as oil prices dipped to the lowest in more than a year.
The Dow and S&P 500 are each down more than 7.5% for the year, while the Nasdaq is down nearly 5.5%.
Investors on Thursday continued to grapple with the Federal Reserve’s latest decision to raise rates. They also digested the specter of a government shutdown, which could take place if a continuing resolution is not passed before the end of the week.
A slew of economic data will be released Friday. The third print on third-quarter gross domestic product is expected to remain unchanged at 3.5%. Third-quarter personal consumption is also expected to stay the same, at 3.6%. The third-quarter GDP price index and quarter-over-quarter core personal consumption expenditures index are anticipated to hold at 1.7% and 1.5%, respectively.
Durable goods orders are expected to have risen 1.8% in November, reversing a 4.3% decline in October. Excluding transportation, the November preliminary reading is expected to reflect a 0.3% increase, versus a 0.2% pace of increase in October.
Personal income and personal spending are each anticipated to have risen 0.3% in November. In October, personal income rose 0.5%, while personal spending rose 0.6%.
The University of Michigan sentiment reading for December is expected to tick down slightly to 97.4 from 97.5 in November.
Quadruple witching will also take place for the fourth and final time this year. This is a phenomenon that occurs on the third Friday in March, June, September and December. During quadruple witching, market index futures, market index options, stock options and stock futures expire on the same day, which tends to stir up bursts of trading volume.
Corporate earnings will be light on Friday, with CarMax (KMX) reporting before the bell.
And here’s what caught Yahoo Finance’s markets correspondent Myles Udland’s eye ...
FedEx matters more than the Fed
This week, the two biggest markets stories started with the letters F-E-D.
Earnings out of FedEx (FDX), however, told the markets more about the global economy than what we heard from the Federal Reserve at its final policy meeting of the year.
On Tuesday evening, FedEx reported earnings and revenue that beat expectations, but it was the company’s commentary about the global economy that caught investors’ attention and tells a story the market has been implying for weeks now — things are worse out there than you think.
“While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives,” Frederick W. Smith, FedEx chairman and CEO said in a statement.
On the company’s earnings call Smith added that the company’s international business had “weakened significantly since we last talked with you during our earnings call in September.” And then he added, “China's economy has weakened due in part to trade disputes.” FedEx cut its outlook for 2019 as a result.
(AP Photo/Ng Han Guan)
This news came about 22 hours before the Fed announced that for the fourth time this year it raised the target range for its benchmark interest rate by 25 basis points.
Markets widely anticipated this move, though markets fell sharply during Fed chair Jerome Powell’s press conference, with the S&P 500 falling about 3% peak-to-trough before closing with losses of around 1.5%.
In his press conference, Powell acknowledged a tougher economic environment, saying that “crosscurrents” in the economy have emerged, citing slowing global growth, increasing market volatility and tighter financial conditions.
Some attributed Powell’s comments on the reduction in the Fed’s balance sheet as being on autopilot as a negative catalyst for markets on Wednesday — from the time the Fed announced it was raising rates until the market close.
But the Fed’s balance sheet has long been background noise for markets, and when the Fed began its program of winding down its security holdings, Fed officials explicitly said this would not be a policy tool. That equity markets — which are and remain in a clear downtrend — would all of a sudden be concerned about these holdings seems like a reach to describe a violent and disquieting move in markets. In the last few months there have been no shortage of violent of disquieting days in markets; Wednesday was but another entry.
And what markets were told by the Fed on Wednesday was, on the margin, a little dovish. The Fed downgraded its forecast for the number of rate hikes it will need to execute next year from three to two, and Powell made clear the Fed is aware of potential speed bumps facing the U.S. and global economy in the year ahead.
“[Wednesday’s] meeting offered no major surprises and largely echoed the expected ‘data dependence’ theme of recent Fed communication, with Chairman Powell noting a few times that ‘neither the pace nor the ultimate destination of any further rate increases is predetermined,’” said analysts at Goldman Sachs on Wednesday. “But overall, the meeting was a bit more dovish than we expected.”
Federal Reserve Chairman Jerome Powell speak at a news conference in Washington, Wednesday, Dec. 19, 2018. (AP Photo/Susan Walsh)
FedEx, however, gave markets a less-expected look at just how bleak the global economic environment seems to one of the world’s most connected companies.
In the last six trading sessions, we’ve now seen four sharp drops in the market. All four days had a different, vague explanation for “why” the market went down. Each narrative offered little more than a tenuous connection for investors. What we know for sure is that stocks went down, and they’ve now been going down for some time. Through Thursday’s close, the Dow and S&P 500 are off more than 7% for the year.
And while the Fed has been consistent in its discussion of where it believes the economy is going, corporate America is more likely to provide markets surprises that feed the negative narrative pushing markets lower right now.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, andreddit.
Read more from Emily:
Why the Huawei arrest is a huge problem for U.S.-China trade relations
Netflix user growth beats expectations, shares spike
Now is a ‘once-in-a-lifetime chance’ to invest in US pot companies, investor says
There are ‘4 headwinds’ facing markets rights now