Arthur J. Villasanta – Fourth Estate Contributor
New York, NY, United States (4E) – The Dow Jones industrial average plunged more than 800 points Wednesday, its worst drop in eight months due to confluence of negative factors that included interest rate fears and Trump’s trade war.
The blue-chip Dow yesterday fell 3.15%, or 831.83 points, while all 30 components of the index wound-up in the red. The S&P 500 fell 3.29%, or 94.66 points, for its fifth day of losses and its longest losing streak since late 2016. Mirroring the Dow’s plunge, the tech-heavy NASDAQ composite fell by 4.08%, or 315.97 points.
The declines were the biggest single-day percentage drops for the Dow and S&P 500 since February.
The demoralizing declines came just a week after the market posted record gains. The Dow posted a new record on Oct. 2, rising 154.76 points, or 0.58 percent, to 26,805.97. The S&P 500 gained 3.5 points, or 0.12 percent, to 2,928.09. On the other hand, the NASDAQ dropped 20.26 points, or 0.25 percent, to 8,017.04.
Analysts were at a loss to explain the magnitude of yesterday’s rout, but concerns over rising interest rates and a robust bond market seemed to be chief among them
“There was no primary culprit today, just a whole lot of individual catalysts that came to a head and ushered the crowd to the door,” believes Ronald Bohlert of the NYSE’s MAC desk.
“Rising yields, recent selling pressure in the market; some early negative pre-announcements; lingering trade worries; caution ahead of the financials reporting earnings on Friday; the approaching year-end… the stage was set for a couple of tires to finally blowout.”
“To use an old analogy, markets tend to take the stairs up — but the elevator down,” noted Bohlert.
Other analysts blamed the stumble on rising bond yields. Normally, when stock prices plummet sharply, money moves into the bond market sending yields lower. Despite the equity sell-off, there was no move into Treasury’s to seek safety, said Bohlert. “That’s an interesting dynamic.”
The S&P 500 falling more than 1.5% and long-term yields rising simultaneously was “very unusual,” according to another analyst. This is only the fourth such instance of this occurring since Jan. 1, 2016.
The 10-year Treasury yield rose to 3.22% from 3.20% late Tuesday after earlier reaching 3.24%. It was at 3.05% early last week.
Rising interest rates were also seen as a major culprit in creating Black Wednesday.
“It’s a bit of a blood bath,” said Ed Campbell, senior portfolio manager at QMA, the asset management branch of Prudential Financial. “It’s primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies.”
The contagion hit many of the market’s best performing stocks over the past year. The FAANG companies (Facebook, Apple, Amazon, Netflix and Google) took some of the biggest losses Wednesday. Amazon lost 6.2% while Netflix lost 8.4%.
Fears of escalating tensions with China over trade also contributed to the fall. On Monday, the International Monetary Fund warned that Trump’s trade war will damage global growth. Trump, however, blamed the U.S. Federal Reserve for the fall.
The biggest driver for the market over the last week has been interest rates. Interest rates began climbing after encouraging reports on the economy. Higher rates, however, can slow economic growth, weaken corporate profits and make investors less willing to pay high prices for stocks.
Article – All Rights Reserved.
Provided by FeedSyndicate