Political gridlock in Washington put the market in a downward spiral as President Trump held fast to his demand for more border security funding, Democrats resisted and the government edged closer to a shutdown.
The Dow lost 414 points, or 1.8 percent, and closed at 22,445.37. It notched its worst weekly loss in a decade.
The S&P 500 fell 2.1 percent. It and the Dow are on track for their worst Decembers since 1931, during the Great Depression.
And the tech-laden Nasdaq was off 3 percent as technology stocks dragged the composite into bear-market territory, which is a 20 percent drop from its high.
The “FAANG” stocks again ransacked the Nasdaq. Facebook was down more than 6 percent, Apple nearly 4 percent, Amazon nearly 6 percent, Netflix 5.5 percent and Google parent Alphabet 3 percent.
“Technology is part of the same story as the overall market,” said Scott Wren, global equity strategist at the Wells Fargo Investment Institute. “The market is fearing a global slowdown and is still worried about the Fed, even though they dragged Williams out to try to cushion what Chairman Powell said on Wednesday.”
“Technology has been in the headlines with regulation and privacy concerns,” Wren said. “And we have technology companies that led on the way up, so it makes some sense that people are taking some money out of their winners.”
In the morning, the Dow had jumped nearly 400 points after Williams, the New York Fed president, said on CNBC that the central bank would pay close attention to the economy as it considered raising rates.
“We are listening. There are risks to that outlook that maybe the economy will slow further,” Williams told Steve Liesman on CNBC’s “Squawk on the Street.”
Fragile markets have proved highly reactive to a flood of news, from rate increases to plunging oil prices to a potential U.S. government shutdown.
“It’s wearing, to say the least, and certainly not good for investor confidence,” said Ed Yardeni, president of Yardeni Research. “The market volatility is being driven by computer algorithm trading programs that instantly buy or sell everything, depending on the news they are getting fed. There’s too much news.”
Asian and European markets were mostly down Friday, still reeling from the effect of Wednesday’s Fed announcement that it was lowering its 2019 growth forecast from 2.5 percent to 2.3 percent. The Fed boosted interest rates up a quarter-point to a range of 2.25 to 2.5 percent, the highest rate in more than a decade.
New federal data released Friday showed the U.S. economy slowed more than expected in the third quarter, although the economy still appears to be robust. Gross domestic product, a metric that measures all goods and services produced in the United States, increased at 3.4 percent annually, down from the 3.5 percent estimated in October.
Fed Chair Jerome H. Powell said Wednesday that the economy remains “healthy” and “solid” and that he did not see any reason to sharply change the Fed’s path of gradually pulling back support for it. But he acknowledged that the economy is showing signs of “softening” and that there is a “fairly high degree of uncertainty” about what the Fed will do.
He was clear the Fed would not shape monetary policy to support stock prices, and the stock markets took that as a bad sign.
Yardeni said Fed officials need to get on the same page.
“Williams’s calming words just demonstrate that the stock market has an unhealthy addiction to monetary policy,” Yardeni said. “Yesterday, investors were disappointed by Powell’s press conference suggesting that monetary policy remained locked on a course of raising interest rates. Today, Williams said they will reassess in the new year.”
“The Fed has done a pretty bad job of communicating their intentions,” Yardeni added. “If they would just stick to the script that monetary policy is data-dependent, without any set course, that is the message the market wants to hear.”
The Dow sank nearly 500 points Thursday on the news that President Trump would not sign a spending bill that would have averted a partial government shutdown Friday night.
Also lurking are growing concerns about a slowdown in the global economy. Those worries have been reinforced by a 30 percent-plus decline in world oil prices since October.
Oil prices continued to drop Friday as new reports showed demand for the commodity is dropping in high-growth economies such as India and China.
Capping the tumult was the White House announcement Thursday afternoon that Defense Secretary Jim Mattis, considered a rock-solid stabilizing force in a frenzied administration, had resigned. Mattis cited differences over Trump’s decision to pull U.S. troops from Syria.
John Lynch, chief investment strategist at LPL Financial, said the flurry of news is taking its toll on anxious investors, even though the overall economy is solid.
“There’s just confusion from the Fed, investor sentiment is fragile, and with the government shutdown, add the Mattis resignation, and it’s been a parade of concerning news that increased investors anxiety Thursday,” Lynch said.
LPL Financial’s outlook for 2019 is growth of 6 to 8 percent in corporate profits and U.S. economic growth between 2.5 and 2.75 percent.
“We are encouraging investors to focus on solid fundamentals,” Lynch said.