Dow falls more than 150 points as Turkey crisis weighs, tech drops

U.S. stocks fell on Wednesday as lingering concerns over Turkey’s financial crisis weighed on investor sentiment. Declines in tech shares and banks also pressured the broader indexes.

The Dow Jones Industrial Average dropped 157 points, while the S&P 500 declined 0.6 percent. The Nasdaq Composite pulled back 0.7 percent.

Bank shares fell broadly as Bank of America and Citigroup both dropped about 1 percent. J.P. Morgan Chase also fell 0.7 percent. The tech sector also dropped more than 0.7 percent.

A Turkish regulator said Wednesday it was limiting banks’ currency swap transactions. The move is likely aimed at curbing short selling against the lira, which has recently taken a beating.

The Turkish lira fell to a record low earlier this week as global investors fear Turkey’s economic troubles could spell trouble for other economies around the world. Last month, Turkey’s inflation rate hit 16 percent, well above the central bank’s 5 percent target.

Pedro Martins, a strategist at J.P. Morgan, reiterated his underweight rating on Turkish equities, noting “we need to see comprehensive macro and policy response” to revisit the recommendation.

“J.P. Morgan’s macro team believes that a policy response would need to consist of the following components: policy rate hikes between [5 percent and 10 percent], fiscal commitment to backstop and recapitalize banks and deal with problem loans, targeted fiscal support for the most distressed sectors – a general policy framework which acknowledges the need for deleveraging and recognizes a recession is a natural side-product of this process,” said Martins in a note Tuesday.

Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on December 29, 2017 in New York.

BRYAN R. SMITH | AFP | Getty Images
Traders work on the floor at the closing bell of the Dow Industrial Average at the New York Stock Exchange on December 29, 2017 in New York.

The sharp decline also comes after a Turkish delegation left Washington without apparent progress on the detention of U.S. pastor Andrew Brunson, sparking fears of U.S. sanctions. Last week, U.S. President Donald Trump said he was in support of doubling metal tariffs on Turkey. Ankara’s government announced new levies on American cars, cigarettes and alcohol.

The Cboe Volatility Index (VIX), widely considered the best fear gauge in the market, rose more than 10 percent to 14.65. Meanwhile, the benchmark 10-year Treasury note yield fell to 2.868 percent on Wednesday.

Tech shares contributed to the decline as Facebook, Apple, Netflix and Alphabet all traded lower. The move down in tech comes after China’s Tencent reported its slowest revenue growth rate since 2015. U.S.-listed shares of the Chinese internet giant dropped about 10 percent.

Earnings season continued on Wednesday as Macy’s reported a better-than-expected quarterly profit and sales. The company’s stock fell more than 5 percent in the premarket, however.

Retail sales in the U.S. rose more than expected last month, gaining 0.5 percent in July versus a Reuters estimate of 0.1 percent. The Commerce Department’s report also showed a year-over-year increase of 6.4 percent.

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