U.S. stocks fell in early trading on Friday, tracking a global equity retreat fueled by the mounting currency crisis in Turkey, which raised the alarm for possible contagion into other markets.
The U.S. dollar DXY, +0.59% viewed as a haven relative to other currencies, muscled to its firmest level in nearly a year against major rivals.
What are early indications showing?
The Dow Jones Industrial Average DJIA, -0.84% fell 164 points, or 0.6%, to 25,349. The S&P 500 SPX, -0.56% lost 14 points to 2,839, a decline of 0.5%. The Nasdaq Composite Index COMP, -0.57% was off 39 points to 7,853, a decline of 0.5% that put it on track to snap an eight-day winning streak.
The day’s decline took both the Dow and the S&P negative for the week, with the blue-chip average off 0.6% and the S&P down 0.1%. The Nasdaq is up 0.5% on the week.
What’s driving the market?
The U.S. dollar surged nearly 20% against the Turkish lira USDTRY, +12.3336% According to FactSet data, the lira is down 23% this week, bringing its year-to-date decline to more than 42%.
The move that comes after the European Central Bank expressed concern about the country, where President Recep Tayyip Erdogan was re-elected in a snap vote in June and whose growing power has raised questions about the independence of the country’s central bank.
The lira’s decline prompted U.S. President Donald Trump to announce a doubling of U.S. tariffs on certain Turkish goods.
The iShares MSCI Turkey ETF TUR, -13.33% plummeted 20%, extending its year-to-date decline to 54%.
While U.S. companies have limited direct exposure to the country, the lira’s decline was the latest sign of turmoil in international economies, particularly emerging markets. As such, it added to the cautious tone in the equity market, particularly as both the S&P and the Nasdaq closed within 1% of record levels on Thursday.
Don’t miss: Worried about Turkey? Here’s what it will take to push Wall Street’s buttons
Russia’s market volatility added to the global theme. Newly announced U.S. sanctions—and the potential for a second round of actions in 90 days—roiled Russia’s currency and blue-chip stocks as the country braced for further economic pain amid uncertainties over the Trump administration’s commitment to enforcement.
In Moscow, the ruble USDRUB, +0.8772% shed as much as 5% against the dollar on Thursday and stock averages there plunged as much as 9%.
U.S. stock trading in recent sessions has mostly been a tug of war between concerns about the continuing trade dispute between the U.S. and China and positive sentiment over strong corporate earnings against a healthy economic backdrop. U.S. earnings, on the whole, are solid, with the number of companies beating earnings estimates at the highest point since the third quarter of 2009, according to JPMorgan Chase.
Read: Behold the ‘scariest chart’ for the stock market
What data are in focus?
The consumer price index rose 0.2% in July; a reading of core prices rose by the same amount. The 12-month rate of core inflation rose to 2.4%, the highest rate since September 2008.
Separately, a snapshot of the federal budget hits at 2 p.m.
See more in the U.S. Economic Calendar.
What are market participants saying?
“Turkey’s currency volatility has recently accelerated and now gotten to the point where it’s beginning to impact global markets as investors worry about European banking exposure, said Alec Young, managing director of global markets research at FTSE Russell.
Mike Loewengart, vice president of investment strategy at E*Trade, said that the CPI data “sends a signal that inflation is here to contend with. Investors have reason to take caution, with stagnant wage growth this news could start affecting their wallet.”
Which stocks are in focus?
Overstock.com Inc. OSTK, +18.65% surged 18% a day after news about a private-equity investment overshadowed a larger-than-expected quarterly loss for the online retailer.
Intel Corp. INTC, -2.64% fell 2.4% after Goldman Sachs downgraded the stock and cut its price target, citing competition and margin concerns.
Dropbox Inc. DBX, -7.25% lost 8%. The retreat comes after a second-quarter earnings report, which also included news that Chief Operating Officer Dennis Woodside was stepping down and a post-IPO lockup on shares would expire earlier than previously planned.
Redfin Corp. RDFN, -15.75% tumbled 15% a day after it forecast slower revenue growth in the third quarter.
How are other markets performing?
European stocks fell, as did Asian markets. The Stoxx Europe 600 SXXP, -1.09% was down 0.7% to 387.30, after finishing Thursday’s session with a 0.1% gain.
The ICE U.S. Dollar Index DXY, +0.59% was up 0.4%, off earlier sharper gains.
U.S. benchmark West Texas Intermediate futures CLU8, +1.06% were up slightly, while gold futures GCZ8, +0.30% fell 0.2%, hit by the surging dollar.
Also read: Another stock market risk: GDP growth is slowing across the globe
Providing critical information for the U.S. trading day. Subscribe to MarketWatch’s free Need to Know newsletter. Sign up here.