US stocks continue to fall amid trade war and higher interest rates

Muriel Colon
October 12, 2018

The tumble came after the Dow Jones industrial average closed 831.83 points lower, its third-worst point decline ever, in NY trading on Wednesday amid concerns over a rise in interest rates.

"The direct concern is higher interest rates", said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey. The S&P 500 lost 24.93 points, or 0.89 per cent, to 2,760.75 and the Nasdaq Composite dropped 30.71 points, or 0.41 per cent, to 7,391.34.

Stocks from emerging markets were also hard hit. Amazon and Alphabet, respectively the second- and fourth-most valuable US companies, are in what's known as a "correction", a drop of more than 10 percent from a recent peak.

President Trump blasted the Federal Reserve for raising interest rates. The Nasdaq fell 315 points, or 4.1 per cent, to 7,422. But eventually the high rates worry stock investors, as higher rates tend to increase borrowing costs and cut into profit margins.

The Russell 2000 index of smaller-company stocks fell 22 points, or 1.5 percent, to 1552. And if history is any guide, we won't have to endure too much, as the S&P has been up an average of 14.5% a year after all midterm elections going back to 1946, while all 18 midterms saw higher returns 12 months later, he notes.

The 10-year Treasury yield rose to 3.22 percent from 3.20 percent late Tuesday after earlier touching 3.24 percent.

Bets on market calm, measured by the number of contracts shorting futures for the CBOE Market Volatility Index.VIX compared to long contracts, are at a higher level than before the market correction, according to data from the U.S. Commodity Futures Trading Commission.


United States stocks notched solid gains in the third quarter as investors brushed aside worries about trade wars and focused on strong corporate earnings and solid U.S. economic data.

The drop in yields hurt banks, and JPMorgan Chase fell 3 percent to $1078.13 while Bank of America sank 3 percent to $28.36. Technology companies and retailers, including longtime market favorites Apple, Alphabet and Amazon, continue to slide.

Oil prices fell more than two percent as US stocks plunged, even though energy traders anxious about shrinking supply from Iran due to US sanctions and kept an eye on Hurricane Michael, which closed almost 40 percent of US Gulf of Mexico output. Microsoft and Alphabet, Google's parent company, held up better than the rest of the market.

"The indications we look at lead us to conclude this is likely to be yet another brief pullback in the context of a 9.5-year bull market with another 3-5 years left to go", Reynolds said in a note. After years of big gains, those stocks are now out of favor.

In other metals trading, silver rose 2 percent and copper added 0.8 percent. Heating oil shed 2.6 percent to $2.33 a gallon.

The dollar slipped to 112.17 Japanese yen from 112.27 yen late Wednesday.

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