Sudden jump in United States interest rates prompts Wall Street stock plunge

Cornelia Mascio
Ottobre 11, 2018

Futures point to a 0.5% fall for the S&P 500, a 0.5% decline for the Dow Jones Industrial Average and a 0.7% drop for Nasdaq.

The biggest driver for the market over the last week has been interest rates, which began spurting higher after several encouraging reports on the economy. Apple and Amazon both had their worst day in two and a half years.

Bear markets since 1975 have had far lower percentage drops at their bottom, even as markets have grown remarkably in inflation-adjusted dollars.

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

"The tax cuts juiced earnings this year and that's not sustainable", he said. That hasn't happened since right before the 2016 presidential election. The Nasdaq Composite closed at 7,422.05 for a loss of -315.97 points or -4.08%. The Kospi in South Korea fell 3.6 percent to 2,148.97. Markets are still rattled and they appear headed for a second day of significant losses.

Asia stock indexes added to the global market's pain on Thursday, with benchmarks in Shanghai, Shenzhen and Tokyo all skidding between 4 and 5 percent.

Shares in Facebook, Amazon, Apple, Netflix and Google's parent company Alphabet - the so-called "FAANG" stocks that have driven United States markets to all-time highs recently - all fell in NY trading. Amazon skidded 4.8 percent to $1,781.21. Berkshire Hathaway dipped 4.1 per cent to $214.64 and reinsurer Everest Re slid 4.6 per cent to $218.97.

Luxury retailers tumbled. Tiffany plunged 9.5 percent to $111.28 and Ralph Lauren fell 7.3 percent to $118.42.

In only seven trading sessions this month, yields on 10-year U.S. Treasuries have climbed about 18 basis points and crested over 3.20 percent, hitting their highest levels in more than seven years. 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.

Bond yields and therefore interest rates have been rising for more than two years as the USA economy grew strong.

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 United States economic data.

The move particularly affects high-growth tech companies which have been a source of huge returns in recent months. Adams, of Bloomberg Intelligence, said investors have concerns about their future profitability, too.

A bear market by many definitions requires a drop of at least 20% in the S&P 500 from a bull-market peak; likewise, a bear market starts counting at a 20% rise out of a deep trough.

Sears Holdings nosedived after the Wall Street Journal reported that the struggling retailer hired an advisory firm to prepare a bankruptcy filing that could come within days. In 1987, stocks dropped more than 20 percent on a single day-Black Monday, Oct. 19-after a strong rally crashed into the Persian Gulf turmoil and trade deficits. It was more than US$40 five years ago.

US crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09. Brent crude, the global standard, lost 2.2 per cent to US$83.09 a barrel in London.

Wholesale gasoline shed 2.7 per cent to $2.02 a gallon.

The dollar index fell 0.17 percent, with the euro up 0.25 percent to $1.1518. Natural gas rose 0.6 per cent to $3.28 per 1,000 cubic feet. The Japanese yen strengthened 0.53 percent versus the greenback at 112.36. Copper fell 0.9 per cent to $2.78 a pound.

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

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