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

Dow Jones industrials sink 700 points as bond yields rise

US stock indexes fell in early trading Wednesday as interest rates nudged higher yet. The Dow Jones Industrial Average fell 700 points in afternoon trading.

The losses were widespread, and stocks that have been the biggest winners on the market the last few years, including technology companies and retailers, suffered steep declines. The broader S&P 500 was down by even more, and had its worst day in more than six months. The Nasdaq composite, which has a high concentration of technology stocks, tumbled 244 points, or 3.2 percent, to 7,495.

Wednesday's drop should be placed in perspective.

"The direct concern is higher interest rates", said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey. "This orphan status that equity markets have enjoyed for the last 10 years is disappearing and finally getting some competition from the bond market". As bond yields rise, risk-averse investors-ranging from the proverbial cautious retiree to very big pension funds-become more willing to park more money in bonds and collect the interest.

At the same time, the burgeoning trade war between the United States and China has been creating uncertainty on corporate earnings.

Mona Mahajan, US investment strategist at Allianz Global Investors, said: "The market is digesting the potential that rates moving upwards eventually seep into the real economy in the form of mortgage rates, auto rates, student lending rates. As stocks go down, tech goes down more than the stock market", she said. The Fed aims to raise rates to about 3 per cent.

"I believe this selling is an overdone panic", Feinseth said.

After Trump's election, tens of billions of dollars in new money flooded into mutual funds, a trend that no doubt has contributed to the current bull market's unusual longevity.

The S&P 500 index sank 73 points, or 2.5 per cent, to 2,807 as of 3:30 p.m.

The S&P 500 index hasn't suffered a five-day losing streak since November 2016, just before the United States presidential election.

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The broader All Ordinaries was down 124.9 points, or 2.03 per cent, at 6,038.9, while the Australian dollar was buying 70.65 U.S. cents from 70.13 on Wednesday. It's fallen 7.5 per cent in just five days.

Some of the big losers were stocks that have scored double-digits gains earlier in 2018.

But stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above 3 per cent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases. Boeing lost 4.7 percent to $367.47 and Alphabet, Google's parent company, gave up 5 percent to $1,081.22.

Alibaba dropped 4.1 percent after Morgan Stanley and Raymond James cut their near-term profit estimates on the Chinese e-commerce company, citing a softer economic environment in China. Think of it this way, if the Treasury issues a $1000 bond paying 3 percent interest, investors will not pay $1000 for an older bond paying 2 percent interest.

Benchmark U.S. crude oil fell 2.4 per cent to $73.17 a barrel in NY. When yields rise for that reason, it is generally good for stocks.

United States stocks notched solid gains in the third quarter as investors brushed aside worries about trade wars and focused on strong corporate earnings and solid U.S. economic data. The FAANGs, spread over three sectors, were down between 1.4 per cent and 4.5 per cent.

Stocks are opening broadly lower on Wall Street led by drops in technology and industrial companies. The S&P 500 Utilities index is up 0.4%, a sign that investors are just plain scared.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles an hour. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73.

SEARED: Sears Holdings 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. That didn't happen Wednesday as stocks fell further late in the day. It was more than $40 five years ago.

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