Wall Street dives, setting the ASX up for heavy losses at open

11 Octubre, 2018, 05:25 | Author: Arnold Perez
  • Wall Street slumps as investors dump tech stocks

Companies that sell non-essentials to consumers dropped 1.6 percent.

The S&P 500 posted its fifth straight decline, plummeting almost 3.3%.

The 10-year Treasury yield rose to 3.22 percent from 3.20 percent late Tuesday after earlier touching 3.24 percent. The rise in rates is weighing particularly heavily on areas of the market that had earlier been the biggest winners. The Dow and other major US stock indexes fell more than 3%.

The tech-heavy Nasdaq composite dropped 3.1 per cent. It's fallen 7.5 per cent in just five days.

At the closing bell in the New York Stock Exchange on Wednesday, the Dow Jones Industrial Average had lost 3.1 percent or 830 points to finish at 25,613.35, in the biggest fall in eight months.

Major equity indexes in Europe fell more than 1.0 percent, also pulled down by technology shares, and gold prices inched up as some investors sought refuge in the metal. The stock fell 35.7 percent to 38 cents in morning trading. The latest slump in the market has, however, shaved off some of the big gains.

Apple gave up 4.6 percent to $216.36 and Microsoft dropped 5.4 percent to $106.16. The FAANGs, spread over three sectors, were down between 1.4 per cent and 4.5 per cent.

Boeing shed 3.3 per cent to US$372.58 and 3M fell 2.2 per cent to US$205.77.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles an hour. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73.

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Investors also are bracing for bad trade-related news as corporate reporting season gets started in earnest this week.

Rising bond yields are raising the cost of borrowing to add to market fears. Imagine you had only two investment choices, a risky stock or a less risky bond.

"The direct concern is higher interest rates", said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

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.

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 Fed aims to raise rates to about 3 percent. Paint and coatings maker PPG gave a weak third-quarter forecast Monday, while earlier, Pepsi and Conagra's quarterly reports reflected increased expenses.

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.

A senior White House official told CNBC that President Donald Trump, who has often pointed to rising stock markets at his campaign rallies, had been briefed about the market downturn.

All 30 Dow stocks were in the red, sending the index below 26,000 points for the first time in a month.

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.

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