S&P tumbles 3 percent as USA yields soar, investors shun risk

Marco Green
October 11, 2018

The S&P 500 is on track for its fifth drop in a row and its biggest decline since April. Think of it this way, if the Treasury issues a $1000 bond paying 3 percent interest, investors will not pay $1000 for an older bond paying 2 percent interest. The rise in rates is weighing particularly heavily on areas of the market that had earlier been the biggest winners.

The S&P 500 index fell 15 points, or 0.6 percent, to 2,864.

Shares in Macquarie Bank were much worse, though, dropping 3.26 per cent to $118.90. It's fallen 7.5 per cent in just five days. Amazon skidded 6.2 percent to $1,755.25.

In a note sent out this morning, Kiwibank senior dealer Mike Shirley said the market had taken a few blows. Companies that sell non-essentials to consumers dropped 1.7 percent.

Earlier on Thursday, the SPI200 futures contract was down 109 points, or 1.81 per cent, to 5,914.0 at 7am AEDT, pointing to bleak open for the ASX, which had clawed back some ground on Wednesday after a turnaround in financial stocks and a strong performance by the healthcare sector.

Oil prices fell more than two percent as US stocks plunged, even though energy traders anxious about shrinking supply from Iran due to US sanctions and kept an eye on Hurricane Michael, which closed almost 40 percent of US Gulf of Mexico output. The index fell by more than 3%.

Alphabet, Amazon, Apple, Facebook and Microsoft all fell more than 4 percent each as tech stock crashed.

Investors also anxious about the impact of trade tensions on corporate profits and Hurricane Michael's landfall in Florida adding to the uncertainty.

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.

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.

The 2-year yield hit its highest level since 2008.

The Dow Jones Industrial Average gave up 831.83 points, or 3.1 percent, to 25,598.74.

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.

That has helped make technology stocks more volatile in the last few months.

US stock indexes fell in early trading Wednesday as interest rates nudged higher yet.

USA stocks notched solid gains in the third quarter as investors brushed aside worries about trade wars and focused on strong corporate earnings and solid U.S. economic data.

Yesterday, New Zealand shares fell for an eighth day as investors remain uncertain about the global economic outlook. Silver dipped 0.5 percent to $14.33 an ounce.

In addition, Fundstrat's Robert Sluymer argues that in the near term, stocks look oversold and "due for a rebound", as the S&P tests its first support at its 50-day moving average, and the Nasdaq, at its 100-day moving average.

There were also losses elsewhere. Heating oil fell 1.2 percent to $2.39 a gallon. But they are also possibly leading indicators of the end of a historic bull market, in which stock-market indexes continue upward quarter after quarter. Investors see many of these countries as being vulnerable to higher U.S. interest rates, which can pull away investment dollars. Brazil's Bovespa lost 2.5 percent and the Merval in Argentina sank 2.2 percent.

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.

Other reports by Click Lancashire

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