Friday, October 19, 2018
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Market Digest Online FRIDAY, OCTOBER 19, 2018..... Stocks fell sharply on Thursday, adding to already steep losses for the month of October. The Dow Jones Industrial Average dropped 327.23 points to 25,379.45, led by declines in Caterpillar. The S&P 500 fell 1.4 percent to 2,768.78 as the consumer discretionary and tech sectors lagged. The Nasdaq Composite pulled back 2.1 percent to close at 7,485.14. Overseas, China's Shanghai Composite dropped sharply.

Thursday's declines added to the market's steep losses for the month. The Dow and S&P 500 have fallen more than 4 percent each, while the Nasdaq is down nearly 7 percent in October. Tech, the largest S&P 500 sector by market cap, is among the laggards this month, dropping 7.1 percent.

Among the reasons for selling on Thursday, according to investors, were worries about the U.S.-China trade war, rising interest rates and lingering worries about possible overvalued U.S. tech stocks. Stocks also fell as Treasury Secretary Steven Mnuchin pulled out of a Saudi Arabia investment conference as traders worried a large global investor in the kingdom is coming under greater scrutinee.

Several stocks seen as economic bellwethers fell sharply in the U.S., including United Rentals and Textron, which dropped at least 11 percent each. Snap-on and Caterpillar, meanwhile, fell 9.6 percent and 3.9 percent, respectively. Large-cap tech shares like Facebook and Amazon both fell more than 2.5 percent, along with Alphabet and Netflix.

The Shanghai Composite dropped 2.9 percent and hit its lowest level since November 2014.

"Mr. Market is speaking loud and clear on China. The country is losing and needs to cry uncle," Nick Raich, CEO of The Earnings Scout, said in a note to clients.

"Chinese stocks are now at a four year low as rising U.S. interest rates and the likelihood of less favorable trade deals is going to adversely impact Chinese companies profits next year and its market price is re-setting lower to reflect that," Raich said.

This drop in Chinese stocks increased fears that China's economy, the world's second largest, could be slowing down, dragging down global growth. These worries increased Thursday after European Central Bank President Mario Draghi said one of the risks for the economy was countries trying to circumvent EU budget rules. Draghi's comments sent Italian bond yields to their highs of the day and sent major European stock-market indexes to their session lows.

Housing stocks fell. The iShares U.S. Home Construction ETF (ITB) dropped 2 percent. They also fell after Bank of America Merrill Lynch downgraded shares of Toll Brothers, PulteGroup and NVR and reduced its forecast for housing starts.

The rise in bond yields came a day after the Federal Reserve released the minutes from its September meeting. The minutes showed the central bank is still convinced tighter monetary policy is the best course of action for the economy to remain steady.

"To me, this reflects a lack of trust in the Federal Reserve," said Craig Callahan, president at Icon Funds. "The market fears the Fed will over-tighten."

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