Dow Falls 430 Points as Bond Yields Surge and China Tensions Grow

Marco Green
October 11, 2018

Rising bond yields have been drawing investors out of the stock market, and the best-performing stocks over the past year took some of the biggest losses on Wednesday.

The Dow Jones Industrial Average fell 430 points Wednesday morning, or around 1.6 percent. The Nasdaq composite, which has a high concentration of technology stocks, tumbled 244 points, or 3.2 percent, to 7,495.

"The tax cuts juiced earnings this year and that's not sustainable", he said. Berkshire Hathaway dipped 4.7 per cent to US$213.10 and reinsurer Everest Re slid 5.1 per cent to US$217.73. Companies that sell non-essentials to consumers dropped 1.6 percent.

Bond prices fell. The yield on the 10-year Treasury rose to 3.23 percent. On Tuesday, he reiterated his criticism of the Federal Reserve for raising interest rates, saying that he does not want current economic growth to slow down "even a little bit".

Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, said the stocks have become more volatile in the last few months because investors have concerns about their future profitability. As the base rate from the Fed increases, the value of existing bonds with low-interest drops, which means when bought they will yield higher given a lower base price (price you paid to acquire them).

The S&P 500 index sank 73 points, or 2.5 percent, to 2,807 as of 3:30 p.m.

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

Although that's largely because the United States economy is so strong, the spike in rates for the benchmark USA 10-Year Treasury has investors wondering if the near-decade-old bull market may finally be ending. The stock fell 35.7 percent to 38 cents in morning trading. A move of more than two deviations, or 40 basis points now, leads to negative S&P 500 returns, Goldman says.

Rising government bond yields have made them more attractive, leading investors to pull money out of equities. Chip gear producers Applied Materials, Teradyne and ASML Holdings fell between 3.5 percent and 4.6 percent.

Markets have sold off in recent days as the rate on the 10-year Treasury note flirted with 3.2 percent - its highest level in seven years. The energy sector was close behind with a 2.9 percent loss, as oil extraction in the Gulf of Mexico shutting down due to the hurricane.

CVS dipped 0.1% to $79.40 and Aetna added 0.5% to $204.64.

The CBOE Volatility Index, Wall Street's "fear gauge", rose 2.5 points, gaining for the fifth straight session to hit its highest since June 25.

The Nasdaq fell 177 points, or 2.3 percent, to 7,560. Copper fell 0.9 per cent to $2.78 a pound.

The CAC 40 in France dropped 2.1 percent, Germany's DAX lost 2.2 percent and the FTSE 100 in London fell 1.3 percent.

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.

The Australian dollar slipped against major currencies, down to 70.7 USA cents, 53.6 British pence, 61.4 Euro cents and 79.5 Japanese yen.

Other reports by Click Lancashire

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