Dow Jones industrials sink 700 points as bond yields rise

Mae Love
October 11, 2018

During the regular session, the S&P 500 marked its biggest daily percentage fall since February 8 - 3.3 percent - and Nasdaq registered its biggest fall since June 24, 2016 - 4.1 percent - as rising U.S. Treasury yields sent investors fleeing from risky assets.

The Dow Jones industrial average lost 248, or 0.9 percent, to 26,183, and the Nasdaq composite dropped 145, or 1.9 percent, to 7,589.

The Nasdaq composite, which has a high concentration of technology companies, suffered its biggest loss in more than two years and has dropped nearly 8 percent since the start of October.

"The tax cuts juiced earnings this year and that's not sustainable", he said. Berkshire Hathaway dipped 4.1 per cent to $214.64 and reinsurer Everest Re slid 4.6 per cent to $218.97.

AMD (NASDAQ:AMD) suffered an especially brutal day today with a drop of over 8 percent.

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

Adams, of Bloomberg Intelligence, said investors have concerns about their future profitability, too.

"Both companies highlighted rising costs, not only input costs but increasing operating expenses (and) marketing expenses", she said. 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.

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Stocks have slumped over the last week as a combination of strong economic data and positive commentary from Federal Reserve leaders sent bond yields rocketing higher as investors bet that interest rates will keep rising.

Meanwhile struggling retailer Sears was in focus as the Wall Street Journal reported that it was preparing to file for bankruptcy.

Although that's largely because the U.S. economy is so strong, the spike in rates for the benchmark USA 10-Year Treasury has investors wondering if the near-decade-old bull market may finally be ending. The stock fell 16.8 per cent to 49 cents. Over the years, Sears has closed hundreds of stores and sold several famous brands.

MARKETS ABROAD: Japan's Nikkei 225 added 0.2 percent, South Korea's Kospi dropped 1.1 percent and the Hang Seng in Hong Kong gained 0.1 percent.

That all played into a market that is increasingly anxious about global growth after warnings from the International Monetary Fund this week and a rise in Treasury yields to a more than 7-year high above 3 percent that signals a tightening of available capital globally. In theory, banks should do better if the Fed keeps raising interest rates and bond yields climb higher since it will make their loans more profitable. The energy sector was close behind with a 2.9 percent loss, as oil extraction in the Gulf of Mexico shutting down due to the hurricane.

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

The S&P 500 fell 39 points, or 1.4 percent, to 2,840. The British pound rose to $1.3197 from $1.3146.

CURRENCIES: The dollar held steady at 113.05 Japanese yen.

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