Stock markets slump as reality of rising rates sets in

Irving Hamilton
October 11, 2018

Wall Street shares have fallen sharply as investors sought safety amid growing worries about bond markets and trade tensions.

As long as earnings and the United States economy are continuing to grow, this market pullback will wind up being a healthy dip Alexander said.

Zechner says after booming for so long, stock markets tend not to rise forever and markets historically correct before the broader economy does. That was its worst drop in eight months.

The S&P 500 ITI fell by 4.8 percent as a whole and much of that is attributable to the heavyweight stocks that fell today. Eastern time. It's on track for its fifth straight drop, which hasn't happened since right before the 2016 presidential election.

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

In the 1973-74 stock market crash, for instance, the S&P 500 peaked around 700 in December 1972, and then dropped a percentage point or two nearly every month through October 1973, a 15% decline overall.

In Canada, the S&P/TSX composite index was down 238.87 points or 1.51 per cent, to 15,615.18. Higher rates make current bonds less attractive than future ones, which will come with higher yields. Stocks had come close to big drops in the last few days, but each time they recovered some of their losses.

In the USA, technology stocks were among the biggest drags on major indexes.

Stocks retreated Wednesday, with the Dow Jones industrial average losing more than 800 points in a selloff that accelerated in the final minutes of trading.

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Heavyweights Apple shed 1.6 percent and fell 2.5 percent.

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

Insurance companies slumped as Hurricane Michael hit the Florida Panhandle. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73.

The rates rose Wednesday after the government released data showing the producer price index rose 0.2 percent in September and is up 2.8 percent on a year-over-year basis.

U.S. stock exchanges recorded biggest losses in 8 months as rising interest rates made investors flee risky stocks. Higher rates increase borrowing costs, pinching corporate profits.

The 10-year US Treasury yield rose to 3.23 per cent from 3.20 per cent late Tuesday after earlier touching 3.24 per cent. Chip gear producers Applied Materials, Teradyne and ASML Holdings fell between 3.5 percent and 4.6 percent.

As well, analysts expect companies in the S&P 500 will report profit growth of more than 20 per cent, year-over-year, driven partly by tax cuts and strong economic growth. "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".

All of these stocks have seen sharp gains on the year and yet investors have been quick to sell-off and take profits as they shift into more conservative securities like bonds and treasury notes.

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