Tuesday, 18 December, 2018

Markets Right Now: Dow sinks 800 as tech companies swoon

Why Howard Marks is cautioning investors US stock indexes keep falling as rates resume their climb
Ginger Lawrence | 11 October, 2018, 04:02

The S&P/NZX50 was down 2.3 per cent today falling 204 points to 8845.

If the market closes down at the end of today it will mark the ninth consecutive day of lower share prices on the NZX.

Rising bond yields are raising the cost of borrowing to add to market fears.

The Dow Jones industrial average tumbled more than 400 points to just below 26,000 at lows.

The increase in yields from these bonds - which are parcels of U.S. government debt - can hurt stocks since they will provide competition for investors' cash. And if history is any guide, we won't have to endure too much, as the S&P has been up an average of 14.5% a year after all midterm elections going back to 1946, while all 18 midterms saw higher returns 12 months later, he notes. "We are starting to see downward pressure".

October has often been a nerve-racking month for investors, and this month is living up to that reputation.

"There will be one or two nervous investors out there that will be doing a bit of selling to reduce their exposure". "It topped out in mid to late September".

"Volumes are surging because people are sitting up and acting", he said.

- US stocks plunged to their worst loss in six months on Wednesday as technology companies continue to take sharp losses.

Among the tech sector's worst performers in Europe, Austrian chipmaker AMS fell 5.9 percent and STMicroelectronics closed down 5.8 percent.

The S&P 500 is on track for its fifth drop in a row and its biggest decline since April. It was at just 3.05 per cent early last week and 2.82 per cent in late August. A move of more than two deviations, or 40 basis points now, leads to negative S&P 500 returns, Goldman says. It's fallen 6.3 percent over the last five days.

Heavyweights Apple shed 1.6 percent and Amazon.com fell 2.5 percent.

In London, the FTSE 100 was down by 1% as hopes of a Brexit deal lifted the pound - weakening the sterling value of earnings for numerous global index's multinational constituents.

Bear markets since 1975 have had far lower percentage drops at their bottom, even as markets have grown remarkably in inflation-adjusted dollars.

Microsoft lost 1.4 percent in early trading Wednesday and 3M gave up 1.6 percent. Amazon skidded 4.8 per cent to $1,781.21 (U.S.).

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Oil prices fell more than two percent as US stocks plunged, even though energy traders anxious about shrinking supply from Iran due to US sanctions and kept an eye on Hurricane Michael, which closed almost 40 percent of US Gulf of Mexico output.

Insurance companies dropped as Hurricane Michael continued to gather strength and came ashore in Florida bringing winds of up to 155 miles an hour. The index fell by more than 3%. Boeing lost 4 percent to $370.04 and Alphabet, Google's parent company, gave up 3.2 percent to $1,109.08.

Investors also are bracing for bad trade-related news as corporate reporting season gets started in earnest this week. Bond yields move in the opposite direction to price.

There have recently been several indications that the USA housing market has cooled, likely in part due to higher rates on mortgages.

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.

This time around, strong economic data anxious bond investors, who sent the benchmark yield on Tuesday to 3.261 per cent, the highest since early May 2011.

Paint and coatings maker PPG gave a weak third-quarter forecast Monday, while earlier, Pepsi and Conagra's quarterly reports reflected increased expenses.

That's helped make technology stocks more volatile in the last few months.

US stock indexes fell in early trading Wednesday as interest rates nudged higher yet. "As stocks go down, tech goes down more than the stock market", she said.

Is the dip hitting other markets?

Yesterday, New Zealand shares fell for an eighth day as investors remain uncertain about the global economic outlook.

The S&P/NZX 50 index declined 19.16 points, or 0.2 per cent, to 9050.82.

Stocks fell overnight as Wall Street sweats over global growth prospects and a bond selloff.

There were also losses elsewhere.

The S&P 500 fell 39 points, or 1.4 percent, to 2,840.