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Dow has worst day in eight months as it drops 800 points

11 October 2018

US stocks plunged Wednesday as investors ramped up their selling of high-flying technology and internet stocks.

The Dow Jones industrial average gave up 738 points, or 2.8 per cent, to 25,686. That's helped make technology stocks more volatile in the last few months.

The technology-heavy Nasdaq composite dropped 4.1% to 7,422 points, its biggest loss since February 8.

US stocks slipped Wednesday, putting the S&P 500 on course for a fifth consecutive session of declines as government-bond yields kept rising.

Stocks are extending their slump on Wall Street, led by drops in big technology companies, as rising bond yields draw investors out of stocks.

The biggest driver for the market over the past week has been interest rates, which began spurting higher following several encouraging reports on the economy.

"It is starting to influence the local market".

The Dow Jones Industrial Average fell 430 points Wednesday morning, or around 1.6 percent. The benchmark USA stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election. The tech-heavy Nasdaq Composite was down by 2.4 percent.

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Alibaba dropped 4.1 percent after Morgan Stanley and Raymond James cut their near-term profit estimates on the Chinese e-commerce company, citing a softer economic environment in China. The stock fell 15 per cent to 50 cents. But over the past five days, the losses stuck, and on Wednesday the selling went on right to the closing bell. Microsoft gave up 3.3 per cent. Boeing lost 4.7 percent to $367.47 and Alphabet, Google's parent company, gave up 5 percent to $1,081.22.

The losses were widespread as bond yields remained high after steep increases last week. Berkshire Hathaway fell 3.8 per cent to US$215.20.

Oil prices fell more than two percent as US stocks plunged, even though energy traders anxious about shrinking supply from Iran due to US sanctions and kept an eye on Hurricane Michael, which closed almost 40 percent of US Gulf of Mexico output.

A surge in Treasury yields appears to be fueling the losses, as the 10-year U.S. Treasury note spiked last month and has continued to climb throughout October.

The Australian dollar was buying 70.65 United States cents shortly after 10:00am (AEDT).

Historically, according to Goldman Sachs, rising bond yields have not posed major issues for stocks as long as their ascent has been gradual.

"If investors are going to take profits then it will be from some of the bigger, high-growth names", Nauman said.

"The direct concern is higher interest rates", said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

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Bond prices fell. The yield on the 10-year Treasury rose to 3.23 percent.

"Amazon recently announced they were increasing wages, Facebook is spending a ton on security", she said. The Dow and other major USA stock indexes fell more than 3%.

Sears Holdings plunged 32 percent after the Wall Street Journal said the debt-laden retailer was preparing for a possible bankruptcy. That didn't happen Wednesday as stocks fell further late in the day. A move of more than two deviations, or 40 basis points now, leads to negative S&P 500 returns, Goldman says.

Sears has closed hundreds of stores and sold several famous brands or put them on the block as it sees more customers abandon its stores.

The S&P 500 lost 94 points, or 3.3 percent, to 2,785. The current benchmark interest rate is 2 to 2.25 percent.

But historically, a monthly move of one to two deviations, or 20 to 40 basis points now, would result in flat S&P 500 returns. Silver dipped 0.5 percent to $14.33 an ounce. The Nasdaq fell 177 points, or 2.3 percent, to 7,560.

Japan's Nikkei 225 added 0.2 percent, South Korea's Kospi dropped 1.1 percent and the Hang Seng in Hong Kong gained 0.1 percent. Amazon skidded 6.2 percent to $1,755.25. But they are also possibly leading indicators of the end of a historic bull market, in which stock-market indexes continue upward quarter after quarter.

"A sustained rise in rates is probably reflective of improving economic conditions, so that in and of itself isn't necessarily a bad thing for stocks", said Willie Delwiche, investment strategist at Baird in Milwaukee. Brazil's Bovespa lost 2.5 percent and the Merval in Argentina sank 2.2 percent.

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The dollar fell to 112.59 Japanese yen from 113.05 yen late Tuesday.