US stocks sink on new China worries, North Korean bomb claim

January 6, 2016

NORTH KOREA: Global markets were rattled after North Korea said that it had conducted its first successful test of a hydrogen bomb, a claim that was met with widespread skepticism. North Korea has tested several nuclear devices but has not shown the capability to make a hydrogen bomb.

THE QUOTE: Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute, said the market was overreacting to the latest signs of weakness in China.

“Stocks are not trading on fundamentals,” he said. “They’re trading on fear that Chinese growth is going to collapse and that these lower oil prices are going to lead to a growing number of defaults in the high-yield bond market.”

ENERGY: U.S. benchmark crude sank $2.14, or 5.9 percent, to $33.84 a barrel in New York. If oil closes at that level it will be the lowest since February 2004. Brent crude, a benchmark for international oils, fell $2.08, or 4.6 percent, to $34.34 a barrel in London. The price of wholesale gasoline sank 7.2 percent after the U.S. government said inventories of gas climbed by 10.6 million barrels last week, and the price of heating oil tumbled 4.3 percent.

Marathon Oil declined $1.41, or 11.1 percent, to $11.35 and Murphy Oil shed $2.66, or 11.8 percent, to $19.93.

BONDS: The markets have endured a rough few days to start 2016. J.J. Kinahan, chief markets strategist for TD Ameritrade, said that’s making bonds more appealing.

“Bonds have been up a lot this year even though the interest rates are nothing to be excited about,” he said. “They want the security of knowing that their money is safe.”

U.S. government bond prices rose Wednesday. The yield on the 10-year Treasury note fell to 2.19 percent from 2.24 percent.

PUMP THE BRAKES: Auto retailer AutoNation said it had to offer large discounts in December, especially on luxury vehicles. The company said it will report smaller profits per vehicle in the fourth quarter. The stock dropped $7.21, or 12.7 percent, to $49.54.

CHIPOTLE HIT AGAIN: Chipotle Mexican Grill said it received a federal grand jury subpoena as the government looks into norovirus outbreak at a California restaurant this summer. Chipotle also disclosed that sales at restaurants open at least one year plunged 30 percent in December in the wake of an E. coli outbreak that affected dozens of restaurants and a norovirus outbreak in one location in Massachusetts. The stock lost $23.13, or 5.2 percent, to $425.90. Chipotle has fallen 40 percent since the outbreaks began in October.

NETFLIX JUMPS: Netflix made the biggest gain on the S&P 500. At the Consumer Electronic Conference, the streaming video company said its service is now available in every country in the world except for China, Syria, North Korea and Crimea. Its shares rose $6.17, or 5.7 percent, to $113.83.

CURRENCIES: The euro edged up to $1.0758 from $1.0744. The dollar fell to 118.62 yen from 118.97 yen late Tuesday.

OVERSEAS: France’s CAC 40 shed 1.3 percent and Germany’s DAX dropped 0.9 percent. Britain’s FTSE 100 fell 1 percent. Japan’s Nikkei 225 index lost 1 percent and South Korea’s Kospi fell 0.3 percent. Hong Kong’s Hang Seng shed 1 percent. The Shanghai Composite Index in mainland China rebounded 2.3 percent, as the Chinese government said it will keep some market-stabilizing measures in place.

METALS: The price of gold rose $13.50, or 1.3 percent, to $1,091.90 an ounce. Silver inched up 0.5 cents to $13.976 an ounce. Copper slid 0.8 cents to $2.088 a pound.