Photographs by AP/RICHARD DREW
Specialist Michael Pistillo watches stocks plummet Wednesday on the floor of the New York Stock Exchange.
Originally published October 11, 2018 at 03:58a.m., updated October 11, 2018 at 03:58a.m.
NEW YORK -- U.S. stocks plunged to their worst loss in eight months Wednesday as technology companies continued to drop. The Dow Jones industrial average fell 831 points.
The losses were widespread, and stocks that have been the biggest winners on the market the past few years, including technology companies and retailers, suffered steep declines. Apple and Amazon had their worst day in 2½ years.
The Nasdaq composite, which has a high concentration of technology companies, had its biggest loss in more than two years.
Alec Young, managing director of global markets research at FTSE Russell, said investors fear that rising interest rates and growing expenses will erode company profits next year.
"The tax cuts juiced earnings this year, and that's not sustainable," he said. "The market's starting to say that the glass may be half empty."
The S&P 500 index sank 94.66 points, or 3.3 percent, to 2,785.68. The benchmark index fell for the fifth-straight day, which hadn't happened since just before the 2016 presidential election.
The Nasdaq composite tumbled 315.97 points, or 4.1 percent, to 7,422.05. It's fallen 7.5 percent in just five days.
The Dow gave up 831.83 points, or 3.1 percent, to 25,598.74. The Russell 2000 index of smaller-company stocks shed 46.45 points, or 2.9 percent, to 1,575.41.
After a long stretch of relative calm, the stock market has suffered sharp losses over the past week as bond yields surged. Stocks had come close to big drops in the past few days, but each time they recovered some of their losses. That didn't happen Wednesday as stocks fell further late in the day.
Apple shares fell 4.6 percent to $216.36 and Microsoft dropped 5.4 percent to $106.16. Amazon skidded 6.2 percent to $1,755.25. Industrial and Internet companies also fell hard. Boeing shares fell 4.7 percent to $367.57 and Alphabet, Google's parent company, gave up 4.6 percent to $1,092.16.
Insurance companies' stock dropped as Hurricane Michael roared ashore in Florida, producing winds of up to 155 mph. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73.
Luxury retailers tumbled after LVMH, the parent of Louis Vuitton, said its sales growth in China slowed. Tiffany shares plunged 10.2 percent to $110.38, and Ralph Lauren fell 8.4 percent to $116.96.
The biggest driver for the market over the past week has been interest rates, which began spurting higher after several encouraging reports on the economy. Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.
The 10-year Treasury yield remained at 3.20 percent, about where it was late Tuesday, after earlier touching 3.24 percent. It was at just 3.05 percent early last week and 2.82 percent in late August.
Concerns about inflation, rising interest rates and the potential for the Federal Reserve to tighten monetary policy drove the selling.
The recent rise in bond yields -- which are now at levels last seen in 2011 -- has again become a key concern for stock market investors.
Rising bond yields are something of a double-edged sword. They reflect the strength of the U.S. economy, where unemployment is at 49-year lows. But the yields also serve as a baseline for key borrowing costs, including those for home mortgages.
"Stock markets like rising interest rates because they tend to signal a strong economic backdrop," said Jonathan Golub, chief U.S. equity strategist for Credit Suisse. "That said, stock markets do not like very abrupt, large moves."
President Donald Trump again criticized the Federal Reserve for raising interest rates, calling it a "mistake."
"The Fed has gone crazy," he told reporters Wednesday as he arrived in Pennsylvania for a campaign rally. "So you can say that well that's a lot of safety actually, and it is a lot of safety, and it gives you a lot of margins, but I think the Fed has gone crazy."
White House press secretary Sarah Huckabee Sanders said in a statement after the close of markets that the U.S. economy is "incredibly strong" despite the sell-off, which analysts attributed in part to trade tensions with China.
"It's a correction that we've been waiting for for a long time," Trump said. He frequently celebrates publicly when the stock market reaches new highs, pointing to the gains as affirmation for his economic policies.
Trump was briefed on the market turmoil earlier in the day, a White House official said. He has repeatedly criticized the central bank for raising interest rates this year, decisions aimed at preventing the economy from overheating.
"The fundamentals and future of the U.S. economy remain incredibly strong," Sanders said in a statement. "President Trump's economic policies are the reasons for these historic successes, and they have created a solid base for continued growth."
Many market observers expect that strong third-quarter earnings reports from the nation's publicly traded companies will be enough to help stocks recover from the recent tumble. Those reports will start to flow in earnest Friday, when large banks JPMorgan Chase, Wells Fargo and Citigroup are to post results.
The sell-off came a day after the International Monetary Fund said the world economy is plateauing and cut its growth forecast for the first time in more than two years, blaming escalating trade tensions and stresses in emerging markets.
Trump has added tariffs on $250 billion in Chinese goods this year, and the Chinese have retaliated with levies on $110 billion of American products. The IMF projections don't take into account Trump's threat to expand the tariffs to effectively all of the more than $500 billion in goods the U.S. bought from China last year.
At an event earlier Wednesday during the sell-off, Trump and his top economic adviser, Larry Kudlow, said they believed the U.S. economy was strong. "It is doing well," Trump said.
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.
Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, said the stocks have become more volatile in the past few months because investors have concerns about their future profitability.
"Amazon recently announced they were increasing wages, Facebook is spending a ton on security," she said. "Semiconductors have the most exposure to China out of segments in the S&P 500."
Wednesday's plunging global markets lopped $99 billion from the fortunes of the world's 500 wealthiest people, the year's second-steepest one-day drop for the Bloomberg Billionaires Index.
Amazon.com Inc. founder Jeff Bezos lost $9.1 billion, the most of anyone on the index, as shares of the online retailer fell the most in more than two years. The plunge lowered Bezos' net worth to $145.2 billion, its lowest since July.
In all, 17 people lost more than $1 billion, with the carnage equally distributed across sectors. Berkshire Hathaway Inc.'s Warren Buffett was among the biggest losers in percentage terms as his net worth slid $4.5 billion, or 4.9 percent. The world's 67 wealthiest tech moguls, a group including Bill Gates and Facebook Inc.'s Mark Zuckerberg, had $32.1 billion wiped from their collective net worth.
America's billionaires were the hardest hit at $54.5 billion, more than any other country represented on the index.
Shares of Sears Holdings nose-dived after the Wall Street Journal reported that the struggling retailer hired an advisory firm to prepare a bankruptcy filing that could come within days. The stock fell 16.8 percent to 49 cents. It was more than $40 five years ago.
Sears has closed hundreds of stores and sold several famous brands or put them on the block as it sees more customers abandon its stores.
Benchmark U.S. crude oil fell 2.4 percent to $73.17 a barrel in New York. Brent crude, the international standard, lost 2.2 percent to $83.09 a barrel in London.
Gold rose 0.2 percent to $1,193.40 an ounce. Silver dipped 0.5 percent to $14.33 an ounce. Copper fell 0.9 percent to $2.78 a pound.
Information for this article was contributed by Marley Jay and Stan Choe of The Associated Press; by Justin Sink, Shannon Pettypiece and Devon Pendelton of Bloomberg News; and by Matt Phillips of The New York Times.
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