Dow plunges 831 points as in­ter­est rate jit­ters per­sist

USA TODAY US Edition - - MONEY - Adam Shell

The Wall Street bull got blood­ied and bat­tered Wed­nes­day as the stock mar­ket suf­fered its big­gest sell-off since Fe­bru­ary.

In­vestors bailed out of the mar­ket as fears about the eco­nomic fall­out caused by ris­ing in­ter­est rates and the U.S. trade con­flict with China spooked them.

Tech­nol­ogy stocks, which had been lead­ing the mar­ket higher for most of 2018 and had got­ten pricey, were the hard­est hit. The tech-dom­i­nated Nasdaq com­pos­ite fell 4.1 per­cent.

“These de­vel­op­ments are telling us that the in­vest­ment en­vi­ron­ment has be­come riskier,” says Ed Yar­deni, chief in­vest­ment strate­gist at Yar­deni Re­search.

The Dow Jones in­dus­trial av­er­age plunged nearly 832 points, 831.83, or 3.2 per­cent, to 25,599. The per­for­mance marked the blue-chip av­er­age’s worst one-day de­cline since a drop of more than 1,000 points on Feb. 8. Grow­ing con­cerns about the im­pact of higher bor­row­ing costs on cor­po­rate earn­ings and con­sumer spend­ing prompted in­vestors to dump shares.

“Fear is ris­ing,” says David Ko­tok, chief in­vest­ment of­fi­cer at Cum­ber­land Ad­vi­sors in Sara­sota, Florida. “In­vestors are get­ting a wake-up call.”

Ko­tok went as far as to pre­dict that a full-fledged mar­ket “cor­rec­tion,” or drop of 10 per­cent, is un­der­way. Af­ter its drop of more than 3 per­cent Wed­nes­day, the broad U.S. mar­ket, as mea­sured by the Stan­dard & Poor’s 500, is now 4.9 per­cent off its Sept. 20 record high.

The yield on the 10-year Trea­sury note – a U.S. govern­ment bond that af­fects the pric­ing of things rang­ing from fixed-rate mort­gages to stocks – hit a seven-year high of 3.26 per­cent ear­lier Wed­nes­day. Higher in­ter­est rates make stocks less at­trac­tive rel­a­tive to other in­vest­ments, in­clud­ing bonds, which of­fer higher and more com­pet­i­tive yields and carry lower risk.

In the re­cent slide that be­gan late last week, the Dow has given back nearly 1,200 points, or 4.6 per­cent since its most re­cent peak. The ma­jor worry weigh­ing on stocks is that eco­nomic growth will slow if bor­row­ing costs con­tinue to spike, an­a­lysts say.

While the U.S. econ­omy grew at a 4.2 per­cent pace in the sec­ond quar­ter, wor­ries about the slow­ing eco­nomic growth around the world are grow­ing.

The S&P 500 stock in­dex fell 3.3 per­cent, down for its fifth con­sec­u­tive session and mark­ing its long­est los­ing streak since No­vem­ber 2016.

The mar­ket de­cline comes ahead of the third-quar­ter earn­ings sea­son, which kicks off Fri­day.

JUSTIN LANE/EPA-EFE

One of the ma­jor wor­ries for in­vestors is that eco­nomic growth will slow if bor­row­ing costs con­tinue to spike.

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