The Dow tumbles more than 400 points

Marco Green
October 11, 2018

The index was down 832 points, or 3 percent, at the end of trading Wednesday.

Wall Street stocks plunged Wednesday, with major indices losing more than three percent in a selloff prompted by the sudden jump in U.S. interest rates.

The benchmark Dow index fell 831 points to close at 25,598.74 on Wednesday, wiping out 3.2 percent of its value in the sharpest drop since February. The benchmark index fell for the fifth straight day, which hadn't happened since just before the 2016 presidential election. These sectors had been some of the top performers over the previous year, almost doubling the performance of the S&P 500.

Apple gave up 4.6 percent to $216.36 and Microsoft dropped 5.4 percent to $106.16.

The stock market as a whole, however, had solid reasons behind the fall: rising interest rates. Boeing lost 4.7 percent to $367.47 and Alphabet, Google's parent company, gave up 5 percent to $1,081.22.

United States stock exchanges recorded biggest losses in 8 months as rising interest rates made investors flee risky stocks.

Rising government bond yields have made them more attractive, leading investors to pull money out of equities. Paint and coatings maker PPG gave a weak third-quarter forecast Monday, while earlier, Pepsi and Conagra's quarterly reports reflected increased expenses. Companies that sell non-essentials to consumers dropped 1.7 percent. Berkshire Hathaway dipped 4.1 per cent to $214.64 and reinsurer Everest Re slid 4.6 per cent to $218.97.

The Nasdaq composite tumbled 315.97 points, or 4.1 per cent, to 7,422.05. Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.

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. As of October 10, it's lasted 3,503 days. Adams, of Bloomberg Intelligence, said investors have concerns about their future profitability, too.

For example, a yield rise in a month of one standard deviation or less, which would be 20 basis points now, is manageable for stocks, Goldman said in a note last week.

"That suggests the Fed will keep raising rates, and that's taking the wind out of the stocks that have done the most, particularly in the tech sector".

"If the Feds are insane, this market reaction is bordering on insanity, as so many negative crosscurrents collide that is merely impossible to find a glint of optimism", he added.

Many investors now believe that the Federal Reserve's campaign to "normalize" monetary policy, reversing years of extraordinary support that included the quantitative easing bond buying program and keeping its overnight target very low, will push interest rates higher than previously thought.

Earlier on Wednesday, Sears Holdings plunged on reports that the struggling retailer is preparing to file for bankruptcy. The Japanese yen strengthened 0.53 percent versus the greenback at 112.36. The euro rose to $1.1525 from $1.1496.

Oil futures fell. US crude gave up $1.27 to $71.90 a barrel.

Other reports by Click Lancashire

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