Stocks are in the midst of a scary October slump, sliding sharply again on Wednesday because investors are worried about rising interest rates.
The Dow fell 800 points and dipped below 26,000 for the first time in a month. All 30 Dow stocks were in the red. The Dow was on track to have its third-worst point drop ever. The Dow fell by more than 1,000 points twice this year — their biggest ever — because of inflation fears.
October has often been a nerve-racking month for investors, and this month is living up to that reputation. All three indexes are in the red this month. But the Nasdaq has really taken it on the chin: It has plunged more than 7% already in October.
Tech is taking its lumps because bond yields have climbed in recent weeks, hovering at a more-than-seven-year high.
Although that’s largely because the US economy is so strong, the spike in rates for the benchmark US 10-Year Treasury has investors wondering if the near-decade-old bull market may finally be ending.
Higher long-term rates could slow down red hot sectors of the economy, including technology, especially as the Federal Reserve seems intent on raising short-term rates for the foreseeable future. Higher rates increase borrowing costs, pinching corporate profits.
Investors may want to shift out of momentum and into more defensive stocks — companies that aren’t as expensive and also pay healthy, stable dividends.
Continued worries about a slowdown in China’s economy — especially as trade tension with the United States has escalated — were also dragging down the broader market.
The pullback — particularly for tech stocks — is needed, argued Joe Heider, president of Cirrus Wealth Management.
“The selloff is healthy,” Heider said. “Since the market bottomed in March 2009, it’s been more than 10 years of growth stocks leading the way non-stop.”
Investors were “selling first and asking questions later,” said John Augustine, chief investment officer with Huntington Private Bank.
Augustine added that with earnings due out from big banks JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) on Friday morning, investors will look for new market sectors to take the lead from tech stocks. In theory, banks should do better if the Fed keeps raising interest rates and bond yields climb higher since it will make their loans more profitable.
And Geoff Alexander, the president of R. M. Davis, a wealth management firm, said he wasn’t getting too nervous about Wednesday’s market madness either.
As long as earnings and the US economy are continuing to grow, this market pullback will wind up being a healthy dip Alexander said. The relative lack of volatility was a bit troubling. This slide was long overdue.
“We’ve scratched our heads about the rise in stocks for the past 18 months. But this nothing to be overly concerned about,” Alexander said.
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