US stocks suffer worst loss in eight months as rising interest rates pull investors out of the market

WALL Street stocks plunged Wednesday, with major indices losing more than three per cent in a sell-off prompted by the sudden jump in US interest rates and increasing trade worries.

When all the dust settled after a brutal session, the Dow Jones Industrial Average had lost 3.2 per cent or 830 points to finish at 25,498.74, in the biggest fall since February.

The broadbased S&P 500 slumped 3.3 per cent to end at 2,785.68, while the tech-rich Nasdaq Composite Index plummeted 4.1 per cent to finish the session at 7,422.05.

The Nasdaq decline was its worst in percentage terms since the surprise Brexit vote in June 2016.

Losses were fairly broadbased, with tech companies Amazon and Microsoft 6.2 per cent and 5.4 per cent respectfully. Apple, Boeing, Nike and Visa all tumbled more than four per cent, while Caterpillar and 3M lost almost four per cent.

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

But stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three per cent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

“It’s shifting the tectonic plates,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors. “Equity markets have enjoyed capital flows because bond yields have been so paltry. As rates move back towards fair value, capital is going to flow eventually out of equity risk taking.”

The turmoil came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

Tom Cahill of Ventura Wealth Management said investors were also unnerved by remarks from luxury company LVMH of a crackdown on some goods in China amid the country’s bitter dispute with the United States.

“Two weeks ago this kind of news would not have affected the market,” he said. “But since we are now in a corrective phase, any bad news accelerates the decline.”

LVMH’s travails also raised worries about whether the prospects of luxury brands are fading as the global economic outlook weakens. Among American brands, Tiffany slumped 10.2 per cent and Michael Kors Holdings fell 7.1 per cent.

US airlines were another big loser, with American Airlines sliding 5.8 per cent and Southwest Airlines 3.6 per cent as a major US hurricane caused flight cancellations in Florida.

Gina Martin Adams, the chief equity strategist for Bloomberg Intelligence, said investors were concerned about the big increase in yields, which makes it more expensive to borrow money.

She said they also fear that company profit margins will be squeezed by rising costs, including the price of oil.

Technology and internet-based companies are known for their high profit margins, and many have reported explosive growth in recent years, with corresponding gains in their stock prices. Ms Adams said investors have concerns about their future profitability, too.

That’s helped make technology stocks more volatile in the last few months. “As stocks go up, tech goes up more than the stock market. As stocks go down, tech goes down more than the stock market,” she said.

Meanwhile, Australian shares are tipped to plummet almost 2 per cent at the open.

The SPI200 futures contract was down 109 points, or 1.81 per cent, to 5,914.0 at 7am AEDT on Thursday, pointing to bleak open for the ASX, which had clawed back some ground on Wednesday after a turnaround in financial stocks and a strong performance by the healthcare sector.

The advance of US Treasury yields to more than seven-year highs, as well as escalating fears over US-China trade relations, has hurt equity investor confidence, with the major US indexes losing more than two per cent overnight.

The Aussie is buying 70.73 US cents, up from 70.13 US cents at Wednesday’s close.

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