S&P 500, Dow industrials see worst ever start to new year

This has already been a tough year on Wall Street as the week began with a strong selloff of stocks and the Dow dropping 250 points, or 1.47 percent on Wednesday.

Total non-farm payroll employment rose by 292,000 in December, beating market estimates of 200,000, and unemployment rate was unchanged at 5.0 percent, the US Labour Department said on Friday.

Richmond Federal Reserve President Jeffrey Lacker struck a hawkish note on Thursday, saying the central bank may need to raise interest rates more than four times this year if oil prices stabilize, the dollar stops appreciating and inflation surges toward the Fed’s 2 percent target. Oil prices slipped one percent to $33.65 a barrel, briefly trading at 12-year lows.

While various Fed officials have said four rate hikes in 2016 could be possible, economists and traders are pricing in two hikes, while reducing bets on a third hike by December.

The CBOE Volatility Index ended up 8.1 per cent yesterday at 27.01, its highest close since September 28.

The Dow Jones closed out 393 points down, or 2.32% to 16,514, while the tech heavy Nasdaq lost 147 points to 4,689.

NYSE declining issues outnumbered advancing ones 2,092 to 980, for a 2.13-to-1 ratio on the downside; on the Nasdaq, 2,018 issues fell and 812 advanced for a 2.49-to-1 ratio favouring decliners. On the Nasdaq, 1,566 issues fell and 1,176 advanced.

Losses mounted in afternoon trading as investors braced for another potential drop in Chinese stock markets tomorrow, as new circuit breaker rules will be suspended following their disastrous introduction this week. The Nasdaq, down over 6% in 2016, is off to its bleakest start since 2000. It was still down about 5 percent so far this week – its biggest weekly drop since late August.

For investors, the first five trading days, also known as the “January Indicator”, are critical and can foreshadow how stocks ultimately perform for the year, according to the Stock Trader’s Almanac.

The sluggish financial performance in China impacted markets around the world, with speculation creating fears that Beijing’s economic woes may continue.

Nervous investors sought to lessen their exposure ahead of United States jobs data and a three-day weekend in Japan.

The weekly declines on the S&P and Dow, 6 percent and 6.2 percent, respectively, were the largest for any week going back to September 2011.

“Because of the circuit breaker, people felt they needed to sell now because they didn’t know what would happen”. They have lost about 70 percent since mid-2014.

The energy index fell sharply, with Exxon weighing the most on the sector.