Oil slump leads to Wall Street's worst week in two years

US stocks fell sharply on Friday, leaving the benchmark S&P 500 with its worst weekly performance since May 2012, as investors pulled back from the markets in response to oil’s free-fall and more weak data out of China.

Oil’s declines have underscored concerns about global demand, and with the S&P 500 having hit a record high only last week, investors were loath to fight the downward pressure on stocks, which accelerated in the final minutes of trading. The S&P dropped 3.5 per cent on the week after seven straight weeks of gains.

The S&P energy sector was down 2.2 per cent on the day. It is down 16.5 per cent this year, the worst performing of the bourse’s 10 sectors.

US crude oil fell below $58 (Sh5,250) a barrel, hitting five-year lows, on expectations of reduced worldwide energy demand.

Disappointing data that suggested China’s economy softened in November pushed the materials sector down 2.9 per cent, making it the worst-performing S&P sector on the day.

The drop in oil and weakness in China overshadowed strong US consumer sentiment, which hit an eight-year high.

Some investors hope declining petrol prices will boost consumer spending enough to offset the energy sector’s woes.

However, there is concern that rising volatility in the energy market will migrate to equities as investors worry about slack demand worldwide.

After years of hearing about rising wages ending the era of the China price, when cheap exports lowered the prices of global manufactured goods, it seems that China has a surprise for the world. Deflation, that is, falling prices, is an issue for the world’s second-biggest economy.

After its early 1990s crash, Japan has struggled with deflation for 15 years and has not yet been able to turn it around.

In China, there’s deflation in factory prices, which have fallen continually for two and a half years.

Some of the reasons given for the deflation include falling global commodity prices and over-capacity in Chinese industry.

— Agencies