Wall Street plummets, setting the ASX up for heavy losses at open

Wall Street tumbled on Wednesday in a fast skid, with the tech-heavy Nasdaq leading the declines while the Dow fell more than 800 points and the S&P 500 index hit its longest losing streak in two years.

A surge in Treasury yields appears to be fueling the losses, as the 10-year US Treasury yield spiked last month and has continued to climb throughout October, landing at 3.21 per cent.

Wall Street has suffered heavy falls on Wednesday. Credit:AP

The tech sector was hit hardest, with Netflix down nearly 7 per cent, Amazon down 5 per cent and Apple, Google and Facebook all down more than 3 per cent.

It sets up the Australian sharemarket for steep losses to open the session, with futures at 7:35am AEDT pointing to a fall of 109 points, or 1.8 per cent, at the open.

"Clearly stocks are spooked by higher rates and maybe some inflation that seems to be creeping in," said Michael Farr, CEO of Farr, Miller & Washington. "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 Dow Jones industrial average dropped 3.1 per cent, or 826 points, to land at 25,606. The S&P 500 was down 3.3 per cent, and the Nasdaq saw losses of 4.1 per cent. For the Dow and S&P 500, it represented their worst days since February, while the Nasdaq's decline was its worst since 2016.

The yield on the 10-year US Treasury note is a closely watched number as a signal of where the US economy is headed. The yield -- what it pays its owner for buying it -- climbed above 3 percent in April. Many observers expected that would trigger a sell-off in the stock market as investors flooded their cash into Treasurys. Instead, US equity markets have kept going up.

Investors are leaning into safer stocks with steady dividends - utilities and consumer staples - and pulling out of the higher-paying, higher-risk stocks as other guideposts of growth, like the communication sector, tumbled.

The markets have been on a historic climb -- with the Dow and S&P each notching dozens of new highs since 2016 -- buoyed by a strong US economy and solid corporate earnings.

On Friday, federal data showed that the US jobless rate fell to 3.7 percent in September, it's lowest point since 1969. The Fed has predicted that unemployment will remain below 4 percent through 2020 and inflation is expected to track around 2 percent, conditions that Federal Reserve chief Jerome Powell called "remarkably positive." The Fed aims to raise rates to about 3 percent. The current benchmark interest rate is 2 to 2.25 percent.

President Donald Trump, who has claimed much of the credit for the strong economy, has criticized the Fed's pace of raising interest rates, saying going too fast could slow growth and job creation.

"I think we don't have to go as fast," Trump said Tuesday on CNBC.

Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners, said that although the losses caught him off-guard, he thought many investors were unduly frightened by the rising rates.

"I believe this selling is an overdone panic," Feinseth said. "The Fed will stay on a measured pace.

The Fed increasing rates to me was a sign that the economy was able to stand on its own two feet."

The Washington Post

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