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Traders are working on the New York Stock Exchange (NYSE) floor in New York, United States, on Friday, October 5, 2018. A massive sell-off in technology led the VIX futures contract to a premium on the second month contract. Photographer: Michael Nagle / Bloomberg (Michael Nagle / Bloomberg)
The Dow has sold more than 800 points in one of the worst sales since February as investors fear that the sharp rise in rates will hinder the country's historic economic expansion.
Higher interest rates tend to dampen economic growth and make borrowing more expensive for the US government as well as for businesses and consumers. The US 10-year Treasury, a key benchmark for rates, has risen dramatically and now stands at 3.2%, one of its highest levels since the Great Recession. Rates on many types of loans, such as mortgages and cars, tend to be tied to government bonds.
Traders rushed on the stocks that fueled the economy, namely the big techs. Netflix was down more than 8%, Amazon by 6% and Apple and Google by more than 4.5%. At the same time, risk-free bets, such as utilities and consumer staples, were the only good sellers.
[[[[What does the 10-year Treasury yield mean to you? The real money.]
"It is clear that equities are frightened by rising rates and perhaps inflation that seems to be creeping in," said Michael Farr, CEO of Farr, Miller & Washington. "This suggests that the Fed will continue to raise rates, which will mitigate the effects of the best performing stocks, especially in the technology sector."
The Dow Jones Industrial Average fell 3.1%, or 831 points, to 25,599. The S & P 500 was down 3.3% and the Nasdaq posted losses of 4.1%. The 500 Standard and Poor's stock index had its longest run of losses in two years.
The 10-year US Treasury Note yield is a closely monitored figure that indicates the direction of the US economy. The yield – what it pays to its owner for buying it – soared above 3% in April. Many observers expected this to trigger a selloff in the stock market as investors invest their cash in the Treasurys. Instead, US equity markets continued to grow.
Investors are looking for safer stocks with stable dividends – utilities and consumer staples – and are pulling out of the highest paying and riskier stocks while other indicators of growth, such as the communications sector , have falled.
Markets have experienced a historic ascent – the Dow and S & P indexes each having dozens of new highs since 2016 – driven by a strong US economy and strong corporate earnings.
On Friday, federal data showed that the unemployment rate in the United States fell to 3.7% in September, its lowest level since 1969. The Fed predicted that unemployment will remain below 4% here 2020 and that inflation should remain around 2%. Reserve chief Jerome H. Powell called it "remarkably positive".
The current benchmark interest rate is between 2 and 2.25%. The Fed aims to raise rates to around 3%.
President Trump, who claimed much of the credit for the strength of the economy, criticized the pace of Fed interest rate hikes, saying excessive acceleration could slow down growth and creation. jobs.
"I do not think we should go that fast," Trump told CNBC on Tuesday.
Ivan Feinseth, investment director at Tigress Financial Partners, said that although the sale took him by surprise, he thought that many investors were too scared by the prospect of a rate hike.
"I believe this sale is an excessive panic," Feinseth said. "The Fed will stay on a measured pace. The Fed rate hike for me was a sign that the economy was able to fend for itself. "
Thomas Heath contributed to this report.
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