By Alexander Osipovich and Avantika Chilkoti
U.S. stocks turned lower Friday after reports that a Chinese trade delegation would be returning home earlier than expected, souring hopes that Washington and Beijing were moving toward a trade deal.
The news capped off an eventful week that featured turmoil in money markets and an attack on oil facilities in Saudi Arabia that triggered dramatic swings in crude prices.
The blue-chip index fell 68 points, or 0.3%, in afternoon trading. The S&P 500 dropped 0.2%, while the Nasdaq Composite slumped 0.6%.
Stocks had opened higher but then dropped sharply after news agencies reported that Chinese agriculture officials had canceled a planned trip to Montana and were returning home.
All three indexes are on pace to close the week lower, after three consecutive weeks of gains. Still, both the Dow and S&P 500 are within 1.5% of their closing records reached in July.
Investors have been particularly sensitive to trade-related headlines in recent weeks amid signs that an overseas slowdown is spreading to the U.S.. Mid-level trade talks resumed Thursday, ahead of higher level talks that were slated to start next month.
Investors snapped up assets seen as safe havens. The yield on U.S. 10-year Treasurys fell to 1.758%, from 1.777% on Thursday. Bond yields fall as prices gain. Gold prices rose 1.1%.
Much of investors' focus earlier this week was whether the Fed -- internally divided and under pressure from President Donald Trump -- would continue to ease monetary policy and push stocks higher.
In addition to cutting interest rates Wednesday, the Federal Reserve said it would consider at its next meeting whether it should allow its balance sheet to resume growth. The move wouldn't mark the start of a new bond-buying program as a stimulus measure, but a return to the normal precrisis practice of letting the Fed's balance sheet grow in line with the broader economy.
Although investors have cheered the Fed's two rate cuts this year, uncertainty over whether easing will continue is holding stocks back, said Michael Arone, chief investment strategist for State Street Global Advisors.
"We're just below an all-time high, and yet there is this anxiety and lack of conviction," said Michael Arone, chief investment strategist for State Street Global Advisors. "One of the factors behind that is that the Fed continues to baffle investors."
Stock moves were muted this week, but volatility broke out in the oil market and an obscure corner of the financial system that banks rely on for short-term funding.
Rates on short-term repurchase agreements briefly jumped from around 2% to nearly 10% at the beginning of the week. The spike was caused by technical factors: corporate tax payments came due to the U.S. Treasury just as Treasury debt auctions settled, leading to large transfers of cash from the banking system.
That prompted the Fed to step in to relieve funding pressure in the money markets, the first time it had done so since the financial crisis. The central bank pledged to give the financial system another $75 billion boost Friday and to continue such interventions through at least Oct. 10.
U.S. crude oil slipped less than 0.1% to $58.09 a barrel on Friday after days of major price swings. Following an attack on key Saudi production facilities last weekend, oil futures spiked nearly 15%--their largest one-day move in years. But since then they have pared gains as Saudi officials have pledged to restore production to regular levels.
"The price of oil might be capped due to the fundamental slowdown in growth we see around the world, whether that be Europe or the world's second-largest economy, China," said Marshall Stocker, director of country research at Eaton Vance.
Netflix was one of the worst-performing stocks in the S&P 500 on Friday, down 6.2%. The streaming company has been under pressure in recent months amid a decline in its U.S. subscribers.
Overseas, the benchmark Stoxx Europe 600 gained 0.3%. In Asia, the Shanghai Composite and Japan's Nikkei both rose 0.2%.
Write to Alexander Osipovich at firstname.lastname@example.org and Avantika Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
September 20, 2019 15:24 ET (19:24 GMT)Copyright (c) 2019 Dow Jones & Company, Inc.