Markets Right Now: Stocks fall sharply as bond yields rise

11 October, 2018, 05:27 | Author: Eric Barnett
  • Wall Street slumps as investors dump tech stocks

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

Technology stocks, the biggest winners in the market over the past year, took some of the worst losses.

Technology stocks slid more than 2 percent, the most among the 11 major S&P sectors, with the Philadelphia Semiconductor index down 3 percent after Swiss vacuum valve maker VAT Group said demand from chip equipment makers was softening.

Alec Young, managing director of global markets research at FTSE Russell, said investors fear that rising interest rates and growing expenses are going to erode the boost company profits have gotten from the GOP tax overhaul.

The Dow Jones Industrial Average fell as much as 519 points in afternoon trading Wednesday. The S&P 500 shed 1.53% to 2,839.43, on track for its steepest loss since June. The benchmark US stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election.

The Nasdaq 100 Index plummeted more than four percent as Wall Street endured its sharpest one-day fall in months.

Tech stocks and companies that sell non-essentials to consumers have been some of the top performers over the past year, gaining almost twice as much ground as the S&P 500. Boeing lost 4.7 percent to $367.47 and Alphabet, Google's parent company, gave up 5 percent to $1,081.22. In theory, banks should do better if the Fed keeps raising interest rates and bond yields climb higher since it will make their loans more profitable.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles per hour.

The 10-year U.S. Treasury note yield hit 3.214 percent, up from 3.208% a day earlier.

The 10-year yield is now 3.20 percent, the highest in than seven years and up sharply form 2.82 percent in late August.

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

Investors are leaning into safer stocks with steady dividends - utilities and consumer staples - and pulling out of the higher-paying, higher-risk stocks as other guideposts of growth, like the communication sector, tumbled.


Technology and internet-based companies are known for their high profit margins, and many have reported explosive growth in recent years, with corresponding gains in their stock prices.

Gina Martin Adams, the chief equity strategist for Bloomberg Intelligence, said investors were concerned about the big increase in yields, which makes it more expensive to borrow money.

"Amazon recently announced they were increasing wages, Facebook is spending a ton on security", she said. The index fell by more than 3%.

Meanwhile struggling retailer Sears was in focus as the Wall Street Journal reported that it was preparing to file for bankruptcy. The stock fell 16.8 percent to 49 cents.

Many investors now believe that the Federal Reserve's campaign to "normalize" monetary policy, reversing years of extraordinary support that included the quantitative easing bond buying program and keeping its overnight target very low, will push interest rates higher than previously thought. Over the years, Sears has closed hundreds of stores and sold several famous brands.

Benchmark US crude oil fell 2.4 per cent to US$73.17 a barrel in NY. Brent crude, the global standard, lost 2.2 per cent to $83.09 a barrel in London.

The S&P 500 fell 54 points, or 1.9 percent, to 2,825.

INFLATION WATCH: U.S. wholesale prices rose a modest 0.2 percent in September, evidence that inflation is tame.

Gold was flat at $1,191.50 per ounce. The Nasdaq fell 177 points, or 2.3 percent, to 7,560.

Japan's Nikkei 225 added 0.2 per cent, South Korea's Kospi dropped 1.1 per cent and the Hang Seng in Hong Kong gained 0.1 per cent. Amazon lost 6.2 percent and Netflix gave back 8.4 percent. And right now tech stocks-like the trillion-dollar Apple-have dominated a significant part of the rise in value of the market as a whole. Brazil's Bovespa lost 2.5 per cent and the Merval in Argentina sank 2.2 per cent.

The Japanese yen strengthened 0.53 percent versus the greenback at 112.36. The euro rose to $1.1525 from $1.1496.

The euro and sterling rose, underpinned by optimism for a Brexit deal, while the US dollar lost ground against a basket of currencies even as USA yields hovered near multiyear peaks.

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