Stocks enter correction as rate-hike fears return

The dread that gripped equity markets earlier in the week reemerged Thursday as U.S. stocks plunged into a correction on concern that rising interest rates will drag down economic growth.

Selling accelerated in the final hour of trading as major indexes breached round-number milestones they blew past just weeks ago. The S&P 500 tumbled through 2,600 and the Dow failed to hold 24,000. Both are headed toward their average price for the past 200 days, a level that technical analysts say may act as a magnet and a floor.

In the end, the S&P 500 sank 3.8 per cent, taking its rout since a Jan. 26 record past 10 per cent to meet the accepted definition of a correction. The negative superlatives are piling up quickly: The index erased its gain for the year to close at a two-month low and is on track for its worst week since the height of the financial crisis. The Dow plunged more than 1,000 points for the second time in four days.

In Toronto, the S&P/TSX composite index was down 264.97 points, or 1.73 per cent, to 15,065.61, in a broad-based decline. The TSX is down 8.2 per cent from its alltime high of 16,412.94, set on Jan. 4.

Gold was the only positive sector on the commodity-heavy index on Thursday, as more investors shifted toward the safe-haven asset. The April gold bullion contract was up US$4.40 to US$1,319.00 an ounce.

On Wall Street, pressure again came from the Treasury market, where another weak auction put gave bond bears ammunition, sending the 10-year yield to the highest in four years. Equity investors took bond signal to mean interest rates will push higher, denting earnings and consumerspending power.

For a market that hadn’t fallen three per cent from any high in more than a year, the week’s action was enough to rattle even the biggest equity bulls. Accustomed to buying the dip, that wisdom is now in question when more selling by speculators may be imminent.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” said Doug Cote, chief market strategist at Voya Investment Management. “They could be in full panic mode right now.”

Stocks began to fall last Friday after U.S. jobs data showed wages growing more than anticipated, raising worries that creeping signs of higher inflation might push the U.S. Federal Reserve to increase interest rates more quickly.