Tech companies lead another steep sell-off in U.S. stocks
Another torrent of selling gripped Wall Street Wednesday, sending the Dow Jones Industrial Average plummeting more than 600 points and erasing its gains for the year.
The Nasdaq composite, with a hefty roster of tech stocks, bore the brunt of the sell-off, leaving it more than 10 percent below its August peak, what Wall Street calls a “correction.”
Disappointing quarterly results and outlooks continued to weigh on the market, stoking investors’ jitters over future growth in corporate profits. Bond prices continued to rise, sending yields lower, as traders sought safe-haven investments.
“Investors are on pins and needles,” said Erik Davidson, chief investment officer at Wells Fargo Private Bank. “There has definitely been a change in sentiment for investors starting with the volatility we had last week. The sentiment and the outlook seems to be turning more negative, or at the very least, less rosy.”
Investors have grown concerned in recent weeks that Corporate America’s tax cut-fueled earnings growth this year will be arrested in coming months amid rising inflation, uncertainty over the escalating trade conflict between the U.S. and China and the likelihood of higher interest rates. Recent data showing the housing market is slowing have also fueled speculation that U.S. economic growth will start to slow next year.
The outlooks from some of the companies that reported third-quarter results this week, including Caterpillar, 3M and United Parcel Service, only stoked those worries.
“You’ve seen more discouraging [company] commentary this quarter than you have the last two,” said Tom Martin, senior portfolio manager with Globalt Investments. “You’re really starting to get more of a groundswell of caution. There’s some concern about the fourth quarter and what that’s going to look like.”
The S&P 500 lost 84.59 points, or 3.1 percent, to 2,656.10. The index is now off about 9.4 percent from its Sept. 20 peak.
The Dow tumbled 608.01 points, or 2.4 percent, to 24,583.42. The Nasdaq slid 329.14 points, or 4.4 percent, to 7,108.40. That’s the Nasdaq’s biggest drop since August 2011, but it’s still up 3 percent for the year.
The Russell 2000 index of smaller-company stocks gave up 57.89 points, or 3.8 percent, to 1,468.70, and is down 4.4 percent for the year.
Bond prices rose, sending the yield on the 10-year Treasury note down to 3.12 percent from 3.16 percent late Tuesday. The slide in bond yields came as traders sought out lower-risk assets.
Technology stocks and media and communications companies accounted for much of the selling. Banks, health care and industrial companies also took heavy losses, outweighing gains by utilities and other high-dividend stocks.
Despite the tumbling stock prices, the U.S. economy looks solid. Helped by tax cuts, the economy expanded at a 4.2 percent annual pace from April through June, fastest in nearly four years. When the Commerce Department report on third-quarter growth comes out Friday, it’s expected to show another solid pickup of 3.3 percent. Unemployment has dropped to a 49-year-low 3.7 percent.
Responding to the healthy growth, the Federal Reserve has raised interest rates three times this year and is expected to hike them again in December. “The economy is on solid footing,” analysts at BNP Paribas wrote Wednesday. “We think the Fed will continue its gradual pace of rate hikes, for now.”