Dow plunges more than 1,000 points

Investors fear higher interest rates to come

Reuters

A screen shows the Dow results near the end of the day Thursday on the floor of the New York Stock Exchange.
Reuters A screen shows the Dow results near the end of the day Thursday on the floor of the New York Stock Exchange.

U.S. stocks gave up even more ground Thursday, as volatility kept the markets in its grip.

The Dow Jones industrial average tipped 1,032 points into the red, down 4.2 percent, to close at 23,860 as fears deepened over rising interest rates.

Its steep dive in the final minutes of trading put the Dow in so-called correction territory.

The technology-laden Nasdaq and the broad Standard & Poor’s 500-stock index also drifted lower during the day — and each was down more than 3 percent. Trading volumes were 50 percent above normal.

The 3 percent pullback Thursday across U.S. indexes is something that did not happen in all 2017. And the 2018 gains for the Dow and S&P have been wiped out.

Many are bracing for more wild swings ahead as the Chicago Board Options Exchange Volatility Index is holding at twice its level from a week ago.

It’s the fourth ugly day in global markets. European stocks also saw across-the-board losses, led by the Germany’s blue-chip DAX, which lost 2.6 percent, or 330 points. Most Asia indexes, however, were positive overnight.

All major sectors were down Thursday, with technology, real estate and financials leading the plunge, signaling investor unease around interest rates and the prospect of higher inflation.

Alexandra Coupe, associate director investment manager PAAMCO, said rising inflation makes stocks less attractive. Stocks over the long term create more wealth than fixed-income bonds, but they are more volatile and have more risk.

ARTICLE CONTINUES BELOW ADVERTISEMENT

“If I have to choose bonds or equities, with interest rates going up, bonds just got more attractive,” she said.

The yield on the U.S. 10-year Treasury bond touched a four-year high before falling back to 2.83 percent. A 3 percent yield is looked upon by investors as a motive for people to flee the risk of stocks for the relative safety of bonds. When bond prices go lower, their yield increases.

“There is a lot of concern in the rising yield in the 10-year Treasury note,” said David Kass, professor of finance at the University of Maryland. “As it approaches 3 percent, concerns about inflation and competition for stocks by fixed income securities are increasing.”

Boston-based LPL Research released a report titled “Volatility is Back,” which pointed to fear of rising interest rates as the source of the recent swings but cautioned that the economy is fundamentally strong.

“The primary culprit was higher-than-expected wage growth in the January jobs report, which may have increased fears that the Federal Reserve would be more aggressive with interest rate hikes in 2018,” according to LPL. “However, the selling pressure unmasked a variety of issues, including investor complacency and the difficulty of unwinding crowded and complex trades involving leverage, or borrowed money.”

“Though never any fun to endure,” it said, “pullbacks are a normal course for long-term investing.”

CONTINUE READING

MORE Nation & World ARTICLES TO READ NEXT ...

This month the financial website 24/7 Wall St. published its list of America's 20 Most Hated Companies, based on consumer surveys and other metrics.The list bears watching. It provides a rogues' gallery of how companies get in tro ...

Drug regulators want to let drugmakers test Alzheimer's disease treatments on patients years before the disease shows outward signs, and could approve the therapies based on subtle biological signals rather than proof they allevia ...

Give us feedback

Have you found an error or omission in our reporting? Tell us here.

Do you have a story idea we should look into? Tell us here.