Oil prices plummeted to $29 a barrel Friday on the likely return of Iranian oil exports into an already flooded market, dragging equity indices around the world sharply lower.
Unsettled investors snapped up gold and other safe-haven assets amid fears of a global economic slowdown, coupled with concerns about a potential credit default as lower commodity prices make payments by creditors in emerging markets difficult.
Major stock indices in Europe closed down more than 2%, while Wall Street stock indexes tumbled between 2 and 3% as global crude benchmark Brent lost 6% to below $29 a barrel at one point, capping a decline of almost 14% for the week.
“We’re seeing the final capitulation,” said Tina Byles Williams, chief investment officer at FIS Group in Philadelphia, which oversees about $4.4 billion in assets under management.
Williams said crude prices could hit $20 a barrel, a price analysts at Goldman Sachs have said may be necessary to accelerate a slowdown in drilling and return global oil inventories to a more even supply-demand balance.
The risk is that a creditor faced with declining revenues and higher payment costs because of a stronger dollar on its dollar-denominated debt sparks a default, Williams said.
“If that dollar-denominated debt went to finance commodity projects, then that’s obviously quite a toxic brew,” she said.
Yields on the benchmark 10-year U.S. Treasury note were poised to fall below 2% and gold rose as retreating oil prices and equity markets underpinned demand for assets perceived as safer.
On Wall Street, the selloff was broad, with all 10 major S&P 500 sectors in the red and all 30 components of the Dow industrials lower. A 3.8% slide in the beaten-down energy sector led the decline among sectors on the benchmark S&P 500.
“Investors are scared to death,” said Phil Orlando, chief equity strategist at Federated Investors in New York.
Topping investor concerns is a possible hard landing in world No. 2 economy China that drags the rest of the world into recession, Orlando said.
Other concerns include the dollar’s strength, the pace of rate increases planned this year by the Federal Reserve and a manufacturing recession, besides plunging oil prices, he said.
“It’s not giving anyone any confidence because to me at least it resembles a bad reality show on television,” he said.
The Dow Jones industrial average fell 459.01 points, or 2.8%, to 15,920.04. The S&P 500 slid 53.11 points, or 2.76%, to 1,868.73 and the Nasdaq Composite lost 162.52 points, or 3.52%, to 4,452.48.
Both of China’s major stock indexes shed more than 3 percent, raising questions about Beijing’s ability to halt a selloff that has now reached 18 percent since the beginning of the year.