The slump in oil prices is raising red flags on Wall Street…again
The Dow fell as much as 390 points Wednesday afternoon before recovering a little, primarily driven by fears about the ongoing oil price plunge and China’s currency devaluation, experts say. The S&P 500 was down 2.3% and the Nasdaq lost 3%.
All three indexes are now in correction — when the market tumbles 10% or more from its peak — or worse.
As oil prices continued to hover around the lows, it “is putting pressure on equities,” said Art Hogan, chief market strategist at Wunderlich Securities.
Oil prices fell under $30 a barrel Tuesday for the first time in 12 years. On Wednesday, oil hovered around $30.40. The uncertainty over oil prices caused energy stocks in the S&P 500 to decline 2% Wednesday.
Energy firms Freeport-McMoRan and Marathon Oil were among the worst performing stocks Wednesday, each down 7%.
The volatility rocked some of the best performing stocks of last year: tech and consumer discretionary.
Netflix was down 8% Wednesday afternoon, Amazon fell nearly 5% and Google’s stock declined about 3%. All together, tech stocks fell 2% by Wednesday afternoon.
Consumer discretionary stocks got hit hard too. Starbucks was down 2.3%, Home Depot fell 4.5% and McDonalds was down 1.5%. Hotel stocks like Marriott and Host Hotels and Resorts both lost 6% by the afternoon.
Another key factor looming over U.S. stocks is China’s slowing economy and uncertainty over how much its currency, the yuan, will devalue.
Already in 2016, the yuan has lost 1.2% of its value against the dollar. It’s not the worst performing currency, but the yuan’s losses are forcing other currencies to devalue as well, raising concerns about the health of the already-battered global economy.
“The biggest concern that we have coming into the next year is what China is doing with their currency,” says Hogan.