Major indexes fall more than 1% as oil prices plunge

NEW YORK, NY - NOVEMBER 23: People walk outside of the New York Stock Exchange (NYSE) during morning trading on November 23, 2015 in New York City. Following a week of strong gains on Wall Street, markets were down in morning trading. Spencer Platt/Getty Images/AFP == FOR NEWSPAPERS, INTERNET, TELCOS & TELEVISION USE ONLY ==

BENGALURU: US stocks opened sharply lower on Friday, with all three major indexes falling more than 1%, as crude oil prices plumbed levels not seen in seven years on growing oversupply concerns.

The International Energy Agency said it sees the oil glut worsening in 2016 as demand slows and Opec shows no signs of slowing production.

The steep drop in oil prices adds to investor uncertainty as the US Federal Reserve prepares to raise interest rates for the first time since June 2006 at its meeting next week.

Adding to the somber mood, China’s yuan fell to its lowest in 4½ years on concerns about the country’s slowing economy and expectations of a US rate hike.

Global shares were lower amid concerns that weakness in the Chinese currency could weigh on the global economy and on companies with strong export ties to China.

“Oil is serving as a bellwether for the global economy and could be a sign of things to come,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

“Today’s trading action will be tied to oil and could be erratic and choppy.”

At 9:37am ET (1437 GMT) the Dow Jones industrial average was down 229.5 points, or 1.31%, at 17,345.25, the S&P 500 was down 24.31 points, or 1.18%, at 2,027.92 and the Nasdaq Composite was down 52.82 points, or 1.05%, at 4,992.36.

All 10 major S&P 500 sectors were lower, with the materials index’s 2.2% fall leading the decliners, weighed down by DuPont and Dow.

DuPont shares were down 5.6% at US$70.33, after the company agreed to merge with Dow Chemical in a deal valuing the combined entity at US$130bil. Dow was down 3.2% at US$53.14.

Investors are also keeping an eye on US data, which could cement expectations that the Fed is gearing up to hike rates at its Dec 15-16 meeting.

Fed fund futures place an 85 percent chance of a hike. A recent Reuters poll also showed that all but one of 18 brokerages that deal directly with the central bank expect a rate increase.

“The Fed has painted themselves into a corner and if they don’t raise rates then they’re basically saying the economic recovery isn’t strong enough,” Bakhos said, adding in case the Fed decided to hold off, investors will cut their exposure to equities.

A gauge of US consumer spending rose solidly in November as the holiday shopping season got off to a fairly brisk start.

Market analysts expect the University of Michigan’s preliminary consumer sentiment index for December to increase to 92.0 from 91.3 last month. The report will be released at 10am ET.

Jetblue Airways was down 3.6% at US$24.50 after the airline operator said it expected flight sales as measured against capacity to fall in the fourth quarter from a year earlier.

Adobe Systems was up 3.3% at US$91.85 after the Photoshop maker reported a profit that topped market expectations for the ninth straight quarter.

Declining issues outnumbered advancing ones on the NYSE by 2,391 to 331. On the Nasdaq, 1,944 issues fell and 372 advanced.

The S&P 500 index showed 1 new 52-week high and 26 new lows, while the Nasdaq recorded 5 new highs and 72 new lows. - Reuters