Investors around the world fled stocks and piled into havens Thursday as a cautious tone from the Federal Reserve, a resumption of the slide in bank shares and a fresh fall in oil prices fueled anxiety about the global economy.
As investors sought safety, U.S. government bonds, the yen and gold surged. The yield on the 10-year Treasury note dropped to 1.604 percent from 1.706 percent on Wednesday. Gold futures gained 4.5 percent to $1248.80 an ounce, and the dollar fell 1.3 percent against the yen to 111.86.
The Dow Jones Industrial Average declined 320 points, or 2 percent, to 15595. The S&P 500 fell 1.6 percent and the Nasdaq Composite lost 0.8 percent.
Adding to market jitters, Federal Reserve chair Janet Yellen on Wednesday highlighted risks to growth and inflation. On Thursday, Yellen said while she doesn’t think the U.S. central bank will need to push short-term rates into negative territory, the Fed is “taking a look at” the idea.
The sharp declines on Thursday follow a relatively quiet stock-market trading session in the U.S. on Wednesday. But steep falls in Asia and Europe spilled over to U.S. markets.
“There’s something today that’s making investors scramble for downside protection,” said David Jilek, chief investment strategist of Gateway Investment Advisers, which manages about $12 billion. It could be that oil reached another low milestone, he said, which may have triggered some investors to sell. The sharp rise in government bond prices also may have sparked more fear among investors, he added.
Amid the renewed selloff, many investors are wary to make any big changes to their portfolios.
“Now is not the time for investors to do anything heroic, to try to anticipate the next leg down or anticipate a market recovery,” Jilek said. “The markets may muddle along here, or we may enter real bear market territory.”
Financial shares dropped around the globe, adding to this year’s rout. Financial stocks led the S&P 500 lower, as insurance companies posted large declines.
Europe’s banking sector ended Thursday down 6.3 percent, bringing its losses for the year to nearly 29 percent amid uncertainty around interest rates, nonperforming loans and turmoil in emerging markets.
Investors are now questioning whether the concerns will morph into a systemic banking crisis, said Bo Christensen, chief analyst at Danske Invest, which manages about $116 billion in assets. While he doesn’t believe they will, “it’s just a lot of bad news coming at a point in time when markets are very skittish,” he said.
Low interest rates are also adding to pressure on banks as they hit net interest margins. On Thursday, Sweden’s central bank cut its main interest rate further into negative territory, as the European and Japanese central banks test the boundaries of how low interest rates can go.
Meanwhile, declines in oil prices continue to fuel concerns among investors about the strength of the global economy, as well as possible spillover effects from bankruptcies in the energy sector and declines in energy-dependent economies.
“We’re stuck in a nexus where the feedback loop from lower commodity prices is negative to all equities and banks,” said Christensen.
U.S. crude oil recently declined 2.2 percent to $26.85 Thursday.
Even as energy stocks continued to plumb new lows, many investors are unwilling to step in and scoop up the sector.
“Some of the greatest values are in these beaten-down names, but the sentiment is still so negative,” said Kent Engelke, chief economic strategist at Capitol Securities Management Inc.
The Stoxx Europe 600 fell 3.7 percent, while the U.K.’s FTSE 100 index closed at its lowest point since 2012.
Markets in the eurozone’s periphery tumbled to multiyear lows amid the broad flight from risky assets. Spanish and Italian stock markets closed at their lowest levels since 2013.
Portugal’s 10-year yield rose to 3.803 percent as investors dumped government bonds perceived as risky. Its stock market fell to its lowest level since July 2012.
Europe’s basic-resources sector also fell sharply after mining giant Rio Tinto swung to an annual loss and scrapped its commitment to maintaining or steadily increasing its dividend each year amid a sharp downturn in commodity prices. The miner’s shares declined about 3.4 percent.
After more than a month of zero new U.S. stock-market debuts, four small biotechnology companies priced initial public offerings in the past two weeks. It was a bit of seemingly positive news for stocks as many analysts view a healthy IPO market as a prerequisite for solid stock-market performance.
That optimism is fading. As of Thursday, all four IPOs from 2016 are trading below their offer prices, including shares of AveXis and Proteostasis Therapeutics, which both priced their IPOs late Wednesday. AveXis is down more than 15 percent and Proteostasis is down 26 percent in recent trading.
Investors bought assets perceived as safe, driving up the price of gold and government bonds, as well as the price of gold- and Treasury-tracking exchange-traded funds.
Assets in iShares 20-Year Treasury ETF hit a record $9.3 billion this week, according to FactSet data, and its shorter-duration counterpart swelled to $13 billion, the highest since October. In gold, the Market Vectors Gold Miners ETF rose to $5.4 billion in assets, the highest since July.
Japan’s Nikkei Stock Average and China’s Shanghai Composite Index were both closed, but investors continued to pile into the yen, which tends to rise in times of market stress. Sharp gains in the yen are fueling speculation that Japanese authorities could intervene directly to dampen volatility.
The yen has been used as a funding currency, in which investors would borrow the cheap yen to buy higher yielding, or riskier, assets like stocks. Those trades have reversed sharply as the yen has rallied, exacerbating drops in stocks around the world.
Hong Kong’s Hang Seng Index fell 3.9 percent, catching up with the week’s selloff as the market reopened from a holiday.
Other notable figures:
The Dow has fallen more than 10 percent so far this year.
• Financial shares in the S&P fell 3.1 percent, bringing 2016 losses to nearly 18 percent.
• Telecom and utilities are the only S&P sectors with gains this year, at roughly 5 percent and 6 percent, respectively.
• The euro is up 0.3 percent against the U.S. dollar at $1.1320.
• The yield on the 10-year Treasury note closed at a record low of 1.404 percent in July 2012.
