Dow Jones Industrials Sink 800-plus Points

Eileen GuzmanOct 12, 2018

Li Daxiao, chief economist with Yingda Securities in Shenzhen, said both Shanghai and Shenzhen shares dropped more than expected on Thursday after the shock wave from the US rout hit Asia.

The Dow Jones industrial average had its second-biggest drop of the year, plunging almost 500 points, or 1.9 percent, shortly after 2:00 p.m.

USA consumer prices rose less than analysts had forecast in September, reducing expectations the pace of inflation is accelerating despite a tightening labor market. Apple and Amazon both had their worst day in two and a half years.

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.

Big losers in the Dow included JPMorgan Chase, Exxon Mobil, McDonald's, Pfizer and Procter & Gamble.

"The tax cuts juiced earnings this year and that's not sustainable", he said.

The weakness in tech was led by semiconductor names after Swiss vacuum valve maker VAT Group said demand from chip equipment makers was softening. Nasdaq composite, which has a high concentration of technology stocks, tumbled 244 points, or 3.2 per cent, to 7,495.

All three indexes hit records between August 30 and October 3, despite the escalating Sino-US trade dispute gnawing at confidence on corporate profit growth through most of the year. The Nasdaq's 2-percent drop pulled it 7.1 percent away from its high. Facebook, which ranks sixth, has tumbled 30 percent since late July, and Netflix has fallen 22 percent, meeting the threshold for a "bear market".

The Dow Jones Industrial Average fell 198.28 points, or 0.77 per cent, to 25,400.46. "In these kinds of moves, it usually takes three days to wash out".

Stocks have been down for five straight days, but the selloff Wednesday was a whopper in terms of points.

Microsoft dropped 4 per cent to $107.82.

The tech sector was hit hardest, with Netflix down almost 7 per cent, Amazon down 5 per cent and Apple, Google and Facebook all down more than 3 per cent. That's still sharply higher than it was about a week ago, and earlier this week the yield on the 10-year note reached its highest level since mid-2011. Alphabet has dropped 15 percent since late July.

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 dipped 4.1 per cent to $214.64 and reinsurer Everest Re slid 4.6 per cent to $218.97. Amazon plunged 6.2 percent.

"We have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated". When yields rise for that reason, it is generally good for stocks.

Kinahan said investors want to know if Corporate America is anxious about the Trump administration's tariffs on Chinese imports and if it sees signs of slower economic growth.

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

All of those factors could threaten the impressive profits Corporate America has been reporting this year.

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