The losses, which follow declines across the world due to concerns about the health of the Chinese economy and the plunging price of oil, extend the US markets’ worst-ever start to the year. The Dow Jones, which fell by more than 500 points at one point before ending the day down 391 points to 15,988, has fallen by 8.24% so far in 2016.
The Standard & Poor’s 500 has lost more than 8% in the past two weeks and the Nasdaq index of technology stocks is down 10.4%.
Larry Fink, boss of BlackRock, the world’s biggest private investment fund, warned that he expected the market to crash even further in the next few weeks.
“I actually believe there’s not enough blood in the streets,” Mr Fink told CNBC. “We’ll probably have to test the markets lower, and I think when we test the markets lower it’s going to be a pretty good buying opportunity.”
Fink said the markets’ decline has put “a negativity across the economy, a negativity to every CEO looking at his or her stock price, a negativity about business”. He also warned that the oil price, which on Friday settled below $30 for the first time in 12 years, could fall as far as $25 a barrel or lower.
“Investors are scared to death, and the fact that it’s happening at the beginning of the year has some historical significance,” said Phil Orlando, chief equity market strategist at Federated Investors.
It was a broad sell-off with each of the 30 stocks that make up the Dow Jones index down on the day, and every stock except Walmart is in the red for the year so far.
Analysts said the share market drops were fuelled by fears about the health of the Chinese and US economies and the continued slide in the oil price. The price of oil, which is down 20% so far this year, crashed a further 6% on Friday.
The oil price fall, which began over concerns about the rout on Chinese stock markets, has been exacerbated by traders’ expectations of the market being flooded by Iranian exports following the lifting of sanctions. Tehran is expected to target India and Europe with increased exports once sanctions are lifted. The first two weeks of 2016 has been the worst two-week decline for oil since the 2008 financial crisis.
“Markets have to go through several stages and right now they’re just holding their head and crying,” Krishna Memani, chief investment officer at Oppenheimer Funds in New York, told Bloomberg News.
“The drama and issue overnight is more related to oil prices not finding a floor. If it was just China and everything else was OK, we’d see through that. But when China is down and oil drops every day, the market recognizes it has substantial issues.”
Sam Stovall, managing director of US equity strategy at S&P Capital IQ, said: “The sentiment is dominated by fear. Ahead of a long weekend, no one wants to be exposed.”
Wall Street will be closed on Monday, for Martin Luther King Day.
The falling oil price and disappointing retail sales data released on Friday have pushed back expectations of when the Federal Reserve will next increase interest rates, following the first rate rise in almost a decade in December. Fed funds futures show rates are now more likely to raise in September rather than June, as the odds suggested on Thursday.
Bill Dudley, president of the New York Federal Reserve and the second-most important US central banker after Janet Yellen, said the lower oil price and strong dollar have increased the risk of US inflation heading lower and thereby extending the time it will take to reach the Fed’s goal of 2%.
“With respect to the risks to the inflation outlook, the most concerning is the possibility that inflation expectations become unanchored to the downside,” he said in a speech to the New Jersey Bankers Association.
To add to already heightened concerns about the economy, US government figures on Friday showed that retail sales declined in December to make 2015 the worst year for US shops since 2009.
The Commerce Department said retail sales dropped 0.1% compared to November, which benefitted from Black Friday shopping fever. Total sales for 2015 came in 2.1% higher than 2014, but it was the slowest annual growth since 2009.
“Weather, inventory challenges, advances in consumer technology and the deep discounts that started earlier in the season and that have carried into January presented stiff headwinds as retailers competed with one another and their own bottom line,” said Matthew Shay, president and chief executive of the National Retail Federation.
Dudley said the retail data pointed towards a “relatively weak” fourth quarter for overall GDP growth.
Stock markets across the rest of the world also declined sharply on Friday, with the UK’s FTSE 100 and France’s CAC down 2% and Germany’s Dax down 2.4%.
By: Rupert Neate (New York).
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