Tariffs, rising yields blamed for big selloff
The ongoing trade dispute with China was one reason analysts were giving for the steep selloff in US stocks on Wednesday.
The Dow Jones Industrial Average tumbled 831.83 points, or 2.2 percent, to 25,598.74. The S&P 500 lost 94.66 points, or 3.29 percent, to 2,785.68, and the Nasdaq Composite dropped 315.97 points, or 4.08 percent, to 7,422.05.
Traders were girding for losses in Asian stocks on Thursday after the worst rout in US equities since February, which widened late in the session amid concerns the US-China trade conflict is intensifying at the same time that financial conditions are tightening, dampening the outlook for corporate profits.
Fastenal Co, an industrial supply distributor based in Winona, Minnesota, added to angst that the trade war with China is raising materials costs, which will pinch profit margins.
Fastenal reported third-quarter results on Wednesday that beat expectations but said “challenges remain from inflationary pressures and new tariffs on Chinese-sourced goods”.
Like Fastenal, other company executives on quarterly earnings calls also will discuss how they expect the trade standoff with China to affect business.
Estee Lauder and Tiffany led stock losses after French luxury goods maker LVMH confirmed that China is enforcing customs rules more strictly amid the trade tensions.
Oil fell from $75 a barrel despite Hurricane Michael bearing down on the US Southeast.
The 10-year Treasury note, a benchmark for home mortgages, rose above 3.25 percent for the first time since May 2011.
“And when you add the threat of higher borrowing costs on things like houses and cars and corporate debt to the economic obstacles caused by the US trade war with China, all it takes is a whiff of weakness to set a major selloff in motion,” USA Today wrote.
The yields on 3-year Treasury notes have recently passed 3 percent, a level that starts to catch the eye of investors — at the expense of stocks.
“Short-term bonds are getting to be a compelling place to hang out,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.
The yields have been boosted by solid US economic data that has many thinking the Federal Reserve will be dishing out rate increases the next 12 months.
US President Donald Trump said the Fed has gone “crazy” raising interest rates.
“Actually, it’s a correction that we’ve been waiting for, for a long time, but I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania.
“The market has been on a 10-year bull run, and we have seldom seen a 10 percent correction during that time. Every time we get around that number, markets come rallying back. What’s different now is that the 10-year bond yield is much higher. I think we’re getting an overdue correction,” said Trip Miller, managing partner at Gullane Capital Partners in Memphis. Reuters and Bloomberg contributed to this story.