A slump in oil prices sparked a global sell-off in financial markets on Friday with losses spreading from Asia to Europe to the U.S., where stocks fell sharply to cap their worst week since the summer.
The selling was broad, with all 10 sectors of the Standard and Poor’s 500 index ending down. Fearful investors put their money in government bonds, especially U.S. Treasurys. Another measure of anxiety, the Volatility Index or Vix, jumped. It is now up 70 percent in just five days.
Investors worry the sharp fall in the price of oil and other commodities is a sign of weakness in the global economy, especially China, and that will cut into profits at big energy producers and suppliers of raw materials as well as other companies.
“We’re stockpiling commodities and demand is not picking up,” said Tim Courtney, chief investment officer of Exencial Wealth Advisors. “It’s kind of a depressing market.”
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Energy shares, already decimated this year, fell 3.4 percent on Friday. Southwestern Energy plunged 14 percent. Freeport McMoRan, a mining giant, dropped 6 percent.
The trouble began with a report from the International Energy Agency that said the oversupply in oil would persist until late next year even as demand continues to weaken. Benchmark U.S. crude plunged $1.14, or 3 percent, to close at $35.62 a barrel in New York. It has been falling for 18 months and is now at its lowest level since early 2009.
By the end of the day, the S&P 500 index had lost 39.86 points, or 1.9 percent, to 2,012.37. It was down 3.8 percent for the week, its worst showing since August.
The Dow Jones industrial average lost 309.54 points, or 1.8 percent, to 17,265.21. The Nasdaq composite declined 111.71 points, or 2.2 percent, to 4,933.47.
In Europe, Germany’s DAX lost 2.4 percent, Britain’s FTSE 100 dropped 2.2 percent and France’s CAC 40 shed 1.8 percent.
Investors were also rattled by trouble in a risky corner of the credit markets where bonds from heavily indebted companies are traded. Their prices have fallen sharply as investors fear the companies that issued the bonds might default. A fund that tracks the bonds, the iShares iBoxx USD High Yield Corporate Bond ETF, has dropped nearly 4 percent in five days.
Investors are also focused on a Federal Reserve meeting next week where the central bank is widely expected to announce an increase in its benchmark interest rate from a record low.
Recent economic reports indicate that the U.S. economy is healthy enough to withstand a rate hike, but investors are still nervous because it would be the first rate rise in nearly a decade.
“It’s anticipation of the Fed, it’s oil, it’s credit … all of these factors are putting fear and confusion into the investor,” said Jonathan D. Corpina, senior managing partner at Meridian Equity Partners.