US stocks ended sharply lower on Friday as well as the week after a Boston central banker’s hawkish comments and tumble by oil prices soured the session.
Boston’s Fed President Eric Rosengren said that on balance labour and prices data supported the case for a rate hike.
Meanwhile the US oil benchmark West Texas Intermediate was off 4.2% to $45.64, resulting in oil stocks dragging tickers down.
The S&P 500 ended down 2.5% - one of the sharpest daily falls in 2016 – to 2,127. On the week it was off 50 points.
The tech-heavy Nasdaq Composite was off 2.5% at 5,125, losing 125 points over the course of the week. The Dow Jones Industrial shed 2.1% to 18,085, shedding nearly 400 points in the week.
The S&P Midcap 400 was off 2.9% at 1,528 and the S&P Smallcap 600 lost 3% to 739.
But that was dwarfed by losses on the wider small-cap Russell 2000, down 3.1% at 1,219.
Midsession
US stocks fell at midsession on Friday on renewed rate hike fears, but for smaller caps the declines amounted to a rout as oil prices gave back this week’s gains.
The S&P 500 market bellwether was down 1.9% at 2,140 and led by Diamond Offshore Drilling Inc (NYSE:DO), down 9.6% at $15.73 after oil prices gave up their previous session’s gains and were down 3.6% at $45.93.
But the main driver for the bourse’s downbeat mood was Boston Federal Reserve’s Eric Rosengren comments on Friday that a “reasonable case” can be made for a rate increase given the growing risk that the US economy and financial markets will overheat.
Influential Rosengren, a voting member of the Fed’s policy-setting board, said that “despite headwinds from abroad” and sluggish non-farm payrolls in August, the US labour market continues to “gradually tighten” while inflation is “slowly returning” to the Fed’s goal of 2% annual growth.
The jobs market may “reach or even exceed full employment over the next year”, Rosengren said.
Wall Street also homed in on plans for Federal Reserve governor Lael Brainard to deliver remarks in Chicago just eight days before the central bank’s September policy meeting. The conversation is slated for Monday, September 12.
Meanwhile, the S&P Midcap 400 was down 2.3% - one of its biggest daily percentage moves this year – at 1,538 and led by oil and gas driller Noble Corp (NYSE:NE) down 9.2% at $5.86.
The S&P Smallcap 600 was also sharply lower by 2.3% to 745 and led by Basic Energy Services (NYSE:BAS) down 25% to $0.56.
In fact, a long stretch of tranquility on Wall Street was shattered by Rosengren’s comments that the US economy could overheat.
The Vix index, a measure of expected volatility in the US equity market over the next 30 days, jumped as much as 18.5%. That marks the biggest intra-day gain since the 52.1% surge in the so-called Wall Street fear gauge on the day following the Brexit vote in late June.
Pre-open
Wall Street shares are seen crashing lower on Friday as traders mull over ECB comments yesterday and fret over a possible interest rate hike at the end of this month.
On Thursday, stocks closed lower, unable to derive upside from surging oil prices, as the European Central Bank unveiled an action plan for the troubled Eurozone.
The ECB surprised investors by leaving its current quantitative easing efforts without further modification.
The central bank failed to extend the termination date of the programme beyond March 2017 and left rates unchanged at zero percent, as expected.
The S&P 500 market bellwether closed down 0.2% at 2,181.
The S&P Midcap 400 closed down 0.5% at 1,574 while the S&P Smallcap 600 shed 0.3% to 763.
The tech heavy Nasdaq lost around 24 to 5,259 and the Dow Jones shed 46 to 18,479.
In futures today the Dow is seen 102 lower, the S&P500 is 11.5 points lower and the Nasdaq index is over 26 down.
The price of US crude is at the time of writing 2.35% lower to stand at US$46.53 a barrel.
Gold is 0.10% lower at US$1,340 an ounce.