Dow Falls 430 Points as Bond Yields Surge and China Tensions Grow

New York City. With bond prices dropping interest rates have been surging resulting in the Dow Jones Industrials Average falling over 200 poin

Dow Falls 430 Points as Bond Yields Surge and China Tensions Grow Spencer Platt Getty Images10 Oct 2018

USA stocks plunged to their worst loss in eight months on Wednesday as technology companies continued to drop.

The S&P 500 shed 1.53% to 2,839.43, on track for its steepest loss since June. Chip gear producers Applied Materials, Teradyne and ASML Holdings fell between 3.5 percent and 4.6 percent.

The S&P, Dow Jones and Nasdaq plunged between 3 and 4 percent. The benchmark USA stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election. These sectors had been some of the top performers over the previous year, almost doubling the performance of the S&P 500.

Losses were fairly broad-based, with tech companies Amazon and Microsoft plummeting more than three percent, along with Boeing, Nike and Caterpillar.

The stock market as a whole, however, had solid reasons behind the fall: rising interest rates.

Rising government bond yields have made them more attractive, leading investors to pull money out of equities.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles per hour. Berkshire Hathaway dipped 4.1 per cent to $214.64 and reinsurer Everest Re slid 4.6 per cent to $218.97.

On Wall Street, the Philadelphia Semiconductor index tumbled 4.46 percent after Swiss vacuum valve maker VAT Group said demand was softening from chip equipment makers.

The biggest driver for the market over the last week has been interest rates, which began spurting higher following several encouraging reports on the economy. But eventually the high rates worry stock investors, as higher rates tend to increase borrowing costs and cut into profit margins.

In only seven trading sessions this month, yields on 10-year U.S. Treasuries have climbed about 18 basis points and crested over 3.20 percent, hitting their highest levels in more than seven years. Adams, of Bloomberg Intelligence, said investors have concerns about their future profitability, too.

The latest sell-off comes after months of continuous stock market growth stoked by the investors' belief in "American exceptionalism", according to an analyst from investment bank Morgan Stanley.

"That suggests the Fed will keep raising rates, and that's taking the wind out of the stocks that have done the most, particularly in the tech sector".

"The market is not necessarily going to take out much from the yield path", Goncalves said.

Sears nosedived after the Wall Street Journal reported that the struggling retailer hired an advisory firm to prepare a bankruptcy filing that could come within days. Over the years, Sears has closed hundreds of stores and sold several famous brands.

Amazon has soared 50 percent this year, but its stock has fallen 14 percent from its all-time high in early September.

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

USA crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09.

The euro and sterling rose, underpinned by optimism for a Brexit deal, while the USA dollar lost ground against a basket of currencies even as US yields hovered near multiyear peaks.

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