Wall Street tumbles on weak economic data from US, globe

While the stock market started off strong in the beginning of this year, soaring to new heights in its first week of 2015, it concluded trading in the red this week.

Each of the major indices closed down nearly a percent off their opening marks, with the Dow Jones down .92 percent, S&P falling .83 percent, and the NASDAQ dropped .68 percent on Friday, which was enough for each index to erase any gains from the previous week of trading. The main factors that curbed investor’s enthusiasm were a combination of slower economic growth worldwide, the continued precipitous drop in oil prices, and the stagnant wage growth for US workers.

Oil prices continued their free fall, and fell to prices not seen with 2009; coupled with news from Russia and Iraq of record oil production and another OPEC decision to keep supplying crude oil at their current output levels, analysts are beginning to wonder where the bottom is for the crude oil market. Meanwhile, German factory output dropped without warning for the month of November, and China is experiencing deflation at five year highs.

“Concern over weaker demand prospects in China and Europe remain dominant, although we see a certain circular logic here, with falling oil prices now often cited as pointing to weak macroeconomic prospects, which feeds back as lower demand expectations for crude oil as worry reinforces worry,” said Timothy Evans, Citigroup energy futures analyst, in a report. “We don’t doubt that demand looks soft; we would just take care not to count the same factor more than once.”

Stateside, while job numbers released on Friday heralded lows in unemployment, a report on US wages undercut the good news. In December, US workers reported a drop in earnings equal to about five cents an hour. For 2014, workers in the US experienced a measly 1.7 percent, the lowest growth since 2012.

“What it basically shows is that the average worker is keeping his head above water but he’s not really doing a lot better,” said Gary Thayer, Wells Fargo head of global macro strategy, in a call. “With wage growth still very modest, I don’t think there’s any urgency for [the Federal Reserve] to move any sooner than what they planned.”

Job growth was better than expected in December, adding 12,000 jobs more than the projected 240,000. Meanwhile, the November jobs report was revised upwards to 353,000. The data completes nearly a full year of growth of over 200,000 jobs per month (currently the streak is 11 months long).

“A job report either very low or very high might have changed expectations for what the Fed would do,” said Kate Warne, investment strategist for Edward Jones. “This simply says the Fed’s likely to move some time in the second half of the year.”

According to experts the Federal Reserve is expected to raise interest rates, after years of holding steady or making cuts, because it has determined the US economy is healthy enough to sustain a higher cost of borrowing.