Published: Fri, October 12, 2018
Finance | By Jaime Brady

Sudden jump in U.S. interest rates prompts Wall Street stock plunge

Sudden jump in U.S. interest rates prompts Wall Street stock plunge

The biggest driver for the market over the last week has been interest rates, which began spurting higher following several encouraging reports on the economy.

The S&P 500 index sank 95 points, or 3.3 percent, to 2,786, its fifth straight drop. All 30 of the Dow's stocks were in the red and it fell below 26,000 total points for the first time in a month, CNN reported.

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. Amazon lost 6.2 percent and Netflix gave back 8.4 percent.

Investors were concerned that the Federal Reserve will continue to raise interest rates and that this will slow economic growth and make borrowing more expensive for the USA government, as well as businesses and consumers. President Trump has broken from tradition and repeatedly criticized the Fed for raising interest rates. On Wednesday he said he thought policy makers were "making a mistake" and said the Fed had "gone crazy". Technology companies were among the losers, with the Nasdaq Composite dropping more than 2% to 7,575.34.

Bank shares were boosted as yields rose, with Citigroup and Bank of America seeing gains of 0.4 percent and 0.3 percent, respectively. But eventually the high rates worry stock investors, as higher rates tend to increase borrowing costs and cut into profit margins.

The Dow's point decline was the worst since February, when the index fell by more than 1,000 - twice.

The two-year yield soared to its highest mark since 2008.

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The 10-year yield is now 3.20 percent, the highest in than seven years and up sharply form 2.82 percent in late August.

Shares in Facebook and Apple also fell more than 1 percent each.

Oil prices slumped to two-week lows as global stock markets fell, with investor sentiment made more bearish by an industry report showing USA crude inventories rising more than expected. Technology companies and retailers, including longtime market favorites Apple, Alphabet and Amazon, continue to slide. France's CAC 40 and the British FTSE 100 both dropped 1.9 percent and the DAX in Germany lost 1.5 percent. JPMorgan Chase and several other banks will report their third-quarter results Friday morning. Microsoft and Alphabet, Google's parent company, held up better than the rest of the market.

The moves come as positive economic data - including the unemployment rate standing at 3.7 percent, its lowest level since 1969 - stoked investor fears that the Federal Reserve would raise rates aggressively to prevent the economy from overheating. Those stocks have made huge gains for years, but they're now out of favor.

The Nasdaq composite has fallen 9.6 percent since it set a record high in late August and the Russell 2000 has fallen 11 percent. United States gold futures settled up $1.9, or 0.16 percent, at $1,193.4.

USA crude fell 1.98 per cent to $71.72 per barrel and Brent was last at $81.30, down 2.15 per cent on the day.

The Japanese yen strengthened 0.01 per cent versus the greenback at 112.29.

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