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Dow drops 300 points as Turkey crisis weighs, tech drops

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  • Dow drops 300 points as Turkey crisis weighs, tech drops

    U.S. stocks fell on Wednesday as lingering concerns over Turkey's financial crisis weighed on investor sentiment. Declines in tech shares and banks also pressured the broader indexes.

    The Dow Jones Industrial Average dropped 300 points, while the S&P 500 declined 1.2 percent. The Nasdaq Composite pulled back 1.7 percent. The Dow and Nasdaq both broke below their 50-day moving averages, while the S&P 500 was approaching it.

    Bank shares fell broadly as Bank of America and Citigroup both dropped more than 1.5 percent. J.P. Morgan Chase also fell 0.9 percent. The tech sector also dropped more than 1 percent.

    "It looks like we took a breather yesterday but it seems like there is a bit of a contagion effect," said Jack Ablin, founding partner of Cresset Wealth. "Commodities are down, currencies are down" and emerging markets are down. "I don't think I can sit here and tell you this is going away."

    A Turkish regulator said Wednesday it was limiting banks' currency swap transactions. The move is likely aimed at curbing short selling against the lira, which has recently taken a beating.

    The Turkish lira fell to a record low earlier this week as global investors fear Turkey's economic troubles could spell trouble for other economies around the world. Last month, Turkey's inflation rate hit 16 percent, well above the central bank's 5 percent target.

    Pedro Martins, a strategist at J.P. Morgan, reiterated his underweight rating on Turkish equities, noting "we need to see comprehensive macro and policy response" to revisit the recommendation.

    "J.P. Morgan's macro team believes that a policy response would need to consist of the following components: policy rate hikes between [5 percent and 10 percent], fiscal commitment to backstop and recapitalize banks and deal with problem loans, targeted fiscal support for the most distressed sectors – a general policy framework which acknowledges the need for deleveraging and recognizes a recession is a natural side-product of this process," said Martins in a note Tuesday.

    The sharp decline also comes after a Turkish delegation left Washington without apparent progress on the detention of U.S. pastor Andrew Brunson, sparking fears of U.S. sanctions. Last week, U.S. President Donald Trump said he was in support of doubling metal tariffs on Turkey. Ankara's government announced new levies on American cars, cigarettes and alcohol.

    The Cboe Volatility Index (VIX), widely considered the best fear gauge in the market, rose more than 13 percent to 15.13. Meanwhile, the benchmark 10-year Treasury note yield fell to 2.868 percent on Wednesday.

    Tech shares contributed to the decline as Facebook, Apple, Netflix and Alphabet all traded lower. The move down in tech comes after China's Tencent reported its slowest revenue growth rate since 2015. U.S.-listed shares of the Chinese internet giant dropped about 6.6 percent.

    Energy shares fell 3 percent and were the worst performers in the S&P 500 as U.S. crude dropped 3.2 percent after the Energy Information Administration said U.S. stockpiles rose by 6.8 million barrels.

    Emerging-market stocks took a beating. The iShares MSCI Emerging Markets ETF (EEM) dropped more than 3 percent and entered bear-market territory, down more than 20 percent from its 52-week high.

    Earnings season continued on Wednesday as Macy's reported a better-than-expected quarterly profit and sales. The company's stock fell more than 12.5 percent, however, as the company struggles to grow sales.

    Meanwhile, shares of General Electric briefly traded below $12 a share for the first time since 2009 as investors fret over the company's turnaround plan.

    Retail sales in the U.S. rose more than expected last month, gaining 0.5 percent in July versus a Reuters estimate of 0.1 percent. The Commerce Department's report also showed a year-over-year increase of 6.4 percent.

    - CNBC
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