Stocks Tumble Into Correction Territory

Summary

WSJ Your Money Briefing — "Stocks Tumble Into Correction Territory"

Date: December 14, 2018
Host: Charlie Turner
Guest: Cori Driebush, Markets Reporter, The Wall Street Journal

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Episode Overview

This episode addresses a turbulent week on Wall Street, focusing on why all three major US stock indexes entered correction territory after a sharp sell-off. Host Charlie Turner discusses recent market downturns with markets reporter Cori Driebush, examining global economic concerns, tax-motivated selling, sector-specific shocks, and how investor psychology is influencing market behavior heading into year-end. The episode closes with a look at key economic events and earnings to watch for in the upcoming week.

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Key Discussion Points

1. Market Performance and Correction Status

• Recap of Market Losses (00:22)
  • Dow fell 496 points to 24,100.
  • Nasdaq dropped 159 points (over 2.25%).
  • S&P 500 lost 50 points.
  • All indexes are in correction territory (down at least 10% from recent highs).
  • Weekly losses: Dow and S&P down ~1.2%, Nasdaq down 0.8%.

2. Global Economic Concerns

• Slowing Growth in China and Europe (01:20–01:56)
  • Cori Driebush:

    "The main concern right now is that there's a slowdown in global growth...just a year or so ago we were talking about synchronized global growth....suddenly this year we've seen a big slowdown in Europe, in China, and the worry is ... will that have a contagion effect and will that also tip us into a recession?" (01:22–01:56)

  • Ongoing trade tensions with China amplify fears, especially for companies with significant Asian revenue exposure.

3. The "Risk-Off" Trade and Tax Loss Selling

• Risk Aversion and Portfolio Adjustments (02:23–03:23)
  • December's market activity colored by tax loss selling—investors offloading underperforming assets to harvest losses for tax write-offs.
  • Cori Driebush clarifies:

    "There's a lot of quote unquote tax loss selling, which means...I'm going to sell it and book those losses because then they're tax write offs. So we're seeing a lot of the losers sell more than maybe we would have seen before..." (02:38–03:14)

4. Investor Sentiment Around Market Closures

• Hesitation to Hold Positions Over Closures or Weekends (03:23–04:49)
  • Investors reluctant to remain long ahead of weekends or anticipated market closures due to potential surprise news or geopolitical events.
  • Cori Driebush:

    "We've had some really bad Fridays...the rolling average decline or gain, it's a decline right now for Fridays going back the last 12 weeks is the worst kind of 12 week rolling average that we've seen in years." (03:31–04:03)
    "It's really any day that we know the market is going to be closed, but there could be developments. Nobody wants to be long going into that..." (04:18–04:41)

  • Example: Large sell-off before the market closed for the funeral of President George H.W. Bush.

5. Company-Specific Shock: Johnson & Johnson

• Impact of J&J Scandal (04:49–05:37)
  • Breaking news: Johnson & Johnson dropped ~10% after a report on asbestos contamination in its talcum powder, heavily impacting the Dow.
  • Turner:

    "It hasn't been very often lately that news from one particular stock has moved the markets as much." (04:55–05:10)

  • Driebush:

    "That was a pretty bombshell report...the Dow is a stock weighted...average, it fell 100 points on that. Just one component declining 10%." (05:10–05:33)

6. Outlook: Valuations, Buying the Dip, and Year-End Strategy

• Muted Enthusiasm for "Buying the Dip" (05:37–06:39)
  • Current price-to-earnings multiples are seen as attractive, but fund managers are cautious.
  • Driebush:

    "Prices have come down so much. Earnings have gone up so much...We're at really good valuations...However, the last two weeks of the year, why take risks...? So a lot of folks I'm talking to are saying, you know what, first of the year might reevaluate then." (05:48–06:39)

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Memorable Quotes

• On Global Slowdown:

  "The main concern right now is that there's a slowdown in global growth. ...suddenly this year we've seen a big slowdown in Europe, in China, and the worry is...will that also tip us into a recession?"
  — Cori Driebush (01:22–01:56)

• On Investor Caution:

  "Nobody wants to be long going into [a market closure] because we see developments happen. We see our president tweet out news that could potentially shake things up. And it doesn't matter if it's a Saturday at 10am or any day of the week. So it gets everyone a little more jittery."
  — Cori Driebush (04:22–04:41)

• On Year-End Strategy:

  "A lot of fund managers I speak with recognize that [valuations are attractive]. However, the last two weeks of the year, why take risks...?"
  — Cori Driebush (06:14–06:35)

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Looking Ahead: Key Economic Events Next Week (06:50–08:00)

• Federal Reserve’s Final 2018 Policy Meeting (Dec 18-19)

  • Expected interest rate hike; investors watching closing statement and Powell's press conference for 2019 hints.

• Economic and Earnings Reports:

  • Final Q3 GDP estimate (last was +3.5%)
  • Potential partial government shutdown Friday if no budget deal is reached (over border wall funding)
  • November personal income and consumer spending + PCE Price Index, the Fed's preferred inflation measure.
  • Other reports: housing starts, existing home sales, home builder sentiment, and consumer confidence.
  • Earnings: Nike, Walgreens Boots, FedEx, Micron Technology, Darden Restaurants.

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Episode Summary

The episode provides a crisp, accessible breakdown of the factors behind the December 2018 stock market correction—including global economic anxieties, trade tensions, tax-motivated selling, investor risk aversion, and the outsized effect of one company’s scandal (Johnson & Johnson). While some see attractive valuations, many investors and fund managers are hesitating to buy before year-end due to market uncertainty and the risk of negative surprises. The week ahead holds pivotal economic data, a Fed meeting, and looming government shutdown risks—all potential market movers as 2018 comes to a close.

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Transcript

[A]

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[B]

one most trusted app based on August 2025 proprietary survey. Over 500,000 new listings every month based on average new for sale and rental listings July 2024 to June 2025. With youh Money Briefing, I'm Charlie Turner in New York for the Wall Street Journal. Wall street had a bad day Friday and as a result, all three of the major US Averages are now in correction territory. Running down the damage from Friday's session, the Dow Jones Industrials fell 496points to 24,100. The Nasdaq Composite lost 159 points, more than 2.25% and the S&P 500 lost 50. For the week, the Dow and S and P Both lost about 1.2% and the Nasdaq fell 0.8%. Cory Driebush is markets reporter for the Wall Street Journal. So Corey, as mentioned, the markets are in correction territory, a drop of at least 10% from recent highs. First of all, investors are worried about China, aren't they?

[C]

In part, yeah. I mean, the main concern right now is that there's a slowdown in global growth. And it seems so funny since just a year or so ago we were talking about synchronized global growth.

[B]

That's true.

[C]

How fantastic that was. And suddenly this year we've seen a big slowdown in Europe, in China, and the worry is everything seems OK in the US for now we're getting decent numbers. But will that have a contagion effect and will that also tip us into a recession?

[B]

How's our business going to hold up in the US if there are problems from around the world and people are buying less of our products?

[C]

Exactly. And then to that exact point, the blustering over these trade negotiations, that adds a whole nother level of fear and concern to investors, especially when they look at companies that they hold and see just how much of their revenues come from Asia.

[B]

And we should say China is not the only international region with difficulties. On Thursday, the European Central bank cut its economic growth forecasts. It seems like, Corey, that the so called risk off trade is in full force. Can we say that?

[C]

Yes, December is a funny month. So we're seeing funnier things than maybe we would have seen if this were to happen in say, January or February, December. This is a bit technical, but there's a lot of quote unquote tax loss selling, which means financial advisors or savvy investors, if they manage their own money, will look at their portfolio, hold, see what's lost a lot, what's lost some money and say, you know what, I'm going to sell it and book those losses because then they're tax write offs. So we're seeing a lot of the losers sell more than maybe we would have seen before. So that also is compounding on this

[B]

also is it true from what you've heard from investors, they don't want to be long in stocks going into the weekend when, you know, surprise developments could hit.

[C]

Exactly. It's funny, I cover the stock market for the Journal every Friday and started thinking about, wow, we've had some really bad Fridays and it's been pretty consistent. We had our Dow Jones Market data team run some numbers for us and actually the rolling average decline or gain, it's a decline right now for Fridays going back the last 12 weeks is the worst kind of 12 week rolling average that we've seen in years. So this has been going on kind of since October, since the beginning of October when we started seeing this sell off. And it's not just weekends. If you remember, I believe it was last Tuesday before the stock market closed for the funeral of George H.W. bush, former president. We also saw the stock market sell off a lot. It's really any day that we know the market is going to be closed, but there could be developments. Nobody wants to be long going into that because we see developments happen. We see our president tweet out news that could potentially shake things up. And it doesn't matter if it's a Saturday at 10am or any day of the week. So it gets everyone a little more jittery.

[B]

Also Friday there was some stock news, you know, not just general news. Johnson and Johnson knew for decades that its maybe talcum powder was contaminated with asbestos. It seems to me, you know, it hasn't been very often lately that news from one particular stock has moved the markets as much. I think Johnson and Johnson fell about 10% and that really killed the Dow.

[C]

Yes, Johnson and Johnson's big company. That was a pretty bombshell report that came out. It was really well reported, very detailed. It was enough to get folks who held the stock to want to sell it because the Dow is a stock weighted kind of market. Cap weighted average, it fell 100 points on that. Just one component declining 10%.

[B]

The mood of the market just doesn't seem to be very good right now. Even whether or not it's the weekend. What might investors think will happen? I mean, are they just going to buy the dips or are they not going to buy the dips?

[C]

I think from when I've spoken with a lot of investors going back the last few weeks, but especially today, there is this overwhelming feeling that they do see some values. If you think about it, think about price to earnings multiples. I know we've talked about this. I've talked about this with you, Charlie, in the past weeks, but prices have come down so much. Earnings have gone up so much. You look at that calculation. We're at really good valuations.

[B]

They're attractive.

[C]

This is a good time to be buying stocks. A lot of fund managers I speak with recognize that. However, the last two weeks of the year, why take risks and potentially ruin your comparison to your benchmark if you're in a good spot right now? So a lot of folks I'm talking to are saying, you know what, first of the year might reevaluate then.

[B]

Wall Street Journal markets reporter Cori Driebush. Thanks a lot, Cori.

[C]

Thank you so much, Charlie.

[B]

This upcoming week, the Federal Reserve will hold its last policy meeting of the year. That takes place on Tuesday, Wednesday, the 18th and 19th of December, the Fed is widely expected to boost interest rates again. Traders will look at the central bank's closing statement and Fed Chair Jerome Powell's post meeting press conference for clues on the future path of rate hikes. Also in the new week, the Commerce Department releases its final estimate of third quarter gross domestic product. Last month's estimate had the economy growing at a 3.5% pace. And don't forget the federal government faces a partial shutdown Friday night at midnight if no budget deal is reached. President Trump recently threatened a partial shutdown over the proposed border wall with Mexico. A key economic report comes Friday, the government's snapshot of November personal income and consumer spending. This report includes the PCE Price index, which is the Fed's preferred inflation gauge. Other reports due out include housing starts, existing home sales, home builder sentiment and consumer confidence. On the earnings calendar, we get quarterly numbers from Nike, Walgreens, Boots, FedEx, Micron Technology and Darden restaurants. And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.

[C]

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