Higher interest rates in the USA often trigger capital outflows in other markets with emerging markets expected to experience a big drain in investment as investors seek better yields.
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Implied volatility on the S&P 500 as measured by the CBOE Volatility Index rose to 22, above its long-term average of 20. It is now up 70 percent in just five days.
“A lot of today’s movement is obviously around the oil patch”, said Dave Lutz, the Annapolis, Maryland-based head of exchange-traded funds trading for JonesTrading Institutional Services. “It’s kind of a depressing market”.
EUROPE DOWN: Britain’s FTSE 100 dropped 2.2 percent.
OIL TROUBLE: The price of oil fell further after the International Energy Agency said that oversupply would continue until late next year and demand would weaken.
In reaction London’s Brent contract dropped 4.5 percent to $37.93 a barrel and New York’s WTI fix lost 3.1 percent at $35.62 a barrel.
Jetblue Airways was down 4.5 percent at $24.28 after the airline operator said it expected flight sales as measured against capacity to fall in the fourth quarter from a year earlier. The broader Standard & Poor’s 500 stock index (INDEXSP:.INX) fell 39.86 points, or 1.94 percent, to 2,012.
The major averages lost more than three percent over the week, Dow’s worst week in a month and the S&P 500’s worst since the middle of August.
The S&P 500 index rose four points, or 0.2 percent, to 2,052.
Among tech shares, Alibaba lost 5.4 percent after announcing it would buy Hong Kong’s leading English-language newspaper.
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.
Recent economic reports indicate that the US economy is healthy enough to withstand a rate hike, but investors are still nervous because it would be the first in almost a decade. “All of these factors are putting fear and confusion into the investor”, said Jonathan D. Corpina, senior managing partner at Meridian Equity Partners.
Both DuPont and Dow Chemical shares were down following a deal valuing the combined entity at US$130 billion, falling 5.5 per cent and 2.8 per cent respectively.
Crude oil was also down over 3 percent and below $36 a barrel.
ASIA’S DAY: Japan’s benchmark Nikkei 225 index climbed 1 percent to close at 19,230.48 after the yen failed to hold on to the previous day’s gains.
Dow and DuPont shareholders will each own about 50 per cent of DowDuPont.
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In the bond market, treasuries moved sharply higher amid the sell-off on Wall Street. Demand for Treasurys surged (http://www.marketwatch.com/story/demand-for-treasurys-surges-as-oil-rout-hits-stocks-2015-12-11), sending the yield on the 10-year note down 6 basis points to 2.17%-its lowest level this month, while global equities sold off.
