Wall Street plunges as investors seek safety

Daniel Fowler
October 11, 2018

US shares are set for big declines when markets open Thursday.

But historically, a monthly move of one to two deviations, or 20 to 40 basis points now, would result in flat S&P 500 returns.

Wall Street is facing its worst day in eight months, with the Dow Jones index plunging by 831 points.

Tech stocks in the S&P 500 fell 2.7 percent Wednesday for the steepest loss among the 11 sectors that make up the index. The benchmark US stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election.

Apple gave up 4.6 per cent to US$216.36 and Microsoft dropped 5.4 per cent to US$106.16.

Amazon has soared 50 percent this year, but has fallen 14 percent from its all-time high in early September.

Rising costs, as inflation and borrowing rates pick up, could also be a worry for stock markets.

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.

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U.S. stock indexes dived around 1 percent on Wednesday as worries over China and the impact of rising Treasury yields on global growth drove falls in luxury goods companies and chipmakers. Paint and coatings maker PPG gave a weak third-quarter forecast Monday, while earlier, Pepsi and Conagra's quarterly reports reflected increased expenses. The Russell 2000 index of smaller-company stocks shed 37 points, or 2.3 per cent, to 1,584. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73. The tech-heavy Nasdaq Composite was down by 2.4 percent.

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. Higher rates can also slow economic growth, making it more expensive for businesses to borrow and for consumers to spend.

The 10-year Treasury yield rose to 3.22 per cent from 3.20 per cent late Tuesday after earlier touching 3.24 per cent. The yield was just 2.82 percent in last August.

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. Stocks had come close to big drops in the last few days, but each time they recovered some of their losses.

It will take more than a daily stock market correction to stop the Fed from hiking, said George Goncalves, managing director and head of fixed income strategy at Nomura in NY.

Meanwhile struggling retailer Sears was in focus as the Wall Street Journal reported that it was preparing to file for bankruptcy. It was more than US$40 five years ago. Over the years, Sears has closed hundreds of stores and sold several famous brands.

The dollar slipped to 112.17 Japanese yen from 112.27 yen late Wednesday. The euro rose to $1.1525 from $1.1496.

U.S. crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09.

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