Stocks in the US took a nosedive on Friday. The Dow Jones Industrial Average (DJI) fell by over 315 points (a 1.8 percent drop) – representing a weekly decline of 3.8 percent – closing at 17,280.83.
This is the biggest loss since November 2011.
US benchmark crude fell below $58 per barrel – the first time since May 2009. It dropped by 12 percent this week.
The S&P 500 and Nasdaq also saw losses. The S&P fell 33 points, or 1.6 percent, closing at 2,002.33, while Nasdaq dropped 54.57 points, or 1.2 percent, closing at 4,653.60.
Last week the Dow Jones was floating around the 18,000 level after November’s jobs report.
However, a week later things have taken a turn for the worse as investors realize that even though a decline in oil prices is a good thing for consumers, it is bad for the overall economy and financial markets.
As oil prices drop high-cost American oil producers are going to have to reduce production, investment, and also hiring until prices increase again.
Over recent years energy companies have accounted for a large percent of the US junk bond market. In addition, Deutsche Bank recently issued a warning that a fall in crude oil to $60 a barrel would likely cause roughly a third of this debt suffering default.
Lipper data indicates that this week investors pulled $1.9 billion from junk bonds – the most since October and Barclays High Yield Bond SPDR (JNK) dropped to levels not seen since October 2013.
Some investor relief could be found if the Federal Reserve’s statement of the year is dovish.
Significant drops include:
IBM fell by 5.69 points (a 3.53% percent drop) to 155.38. Dupont (DD) fell by 2.28 points (a 3.18% drop) to 69.35. Exxon Mobil (XOM) fell by 2.60 points (a 2.91% drop) to 86.60. Merck & Co dropped by 1.62 points (a 2.73% decline) to 57.72. Goldman Sachs (GS) posted a drop of 4.72 points (a 2.44% decline) down to 188.82.
