Stocks have their worst day in months; Dow drops 800-plus points

Eileen GuzmanOct 11, 2018

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.

It was the fifth negative day for the S&P 500, and the longest losing streak during the Trump presidency.

But stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above 3 per cent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

The Dow, the S&P and the Nasdaq all hit record levels between August 30 and October 3, even as the U.S.

The tech-heavy Nasdaq composite dropped 3.1 per cent.

The Dow Jones Industrial Average fell 3.15 percent, the S&P 500 lost 3.29 percent, and the Nasdaq Composite dropped 4.08 percent.

U.S. stock indexes dived around 1 percent on Wednesday as worries over China and the impact of rising Treasury yields on global growth drove falls in luxury goods companies and chipmakers.

Which stocks are taking the big hits?

The Russell 2000 index of smaller-company stocks shed 46.45 points, or 2.9 percent, to 1,575.41. The latest slump in the market has, however, shaved off some of the big gains. Shares of Microsoft, Facebook, and Apple plummeted by -5.4%, -4.13%, and -4.63% respectively. In retail, Amazon sank 3.6 per cent to US$1803 and Nike gave up 4.4 per cent to US$76.87.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles per hour. Berkshire Hathaway fell 3.8 per cent to US$215.20. Amazon skidded 6.2 percent to $1,755.25 and Alphabet, Google's parent company, gave up 4.6 percent to $1,092.16.

Investors also are bracing for bad trade-related news as corporate reporting season gets started in earnest this week.

For stock investors, the recent spike in bond yields may be prompting some uncomfortable deja vu. Imagine you had only two investment choices, a risky stock or a less risky bond.

Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners, said that although the losses caught him off-guard, he thought many investors were unduly frightened by the rising rates.

Shirley further said tech also faces the challenge of the growing animosity between the United States and China - an issue, which is driving uncertainty in this space.

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

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.

Bond yields and therefore interest rates have been rising for more than two years as the US economy grew strong. It was at just 3.05 percent early last week.

"Both companies highlighted rising costs, not only input costs but increasing operating expenses (and) marketing expenses", she said. A severe sell-off in technology stocks has pushed the front-month VIX futures contract to a premium relative to the second-month contract. 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.

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