Wall Street shares slid on Wednesday, with all three major U.S. indexes down more than 2 per cent in the afternoon as investors dumped high-growth names such as technology and FAANG stocks, with rising Treasury yields and trade-related worries sapping their risk appetite.
Here’s what market strategists are saying.
Tim Ghriskey, chief investment strategist, Inverness Counsel, New York
“It’s an accumulation of various issues. Bonds began to sell off again. The prospect of higher rates concerns investors. Also, we’re in a blackout period for companies to buy their own stock, which has been a significant boost to the market. Then you have the elections coming up. The general feeling is that Democrats will win the House and Republicans will stay in control of the Senate. If Democrats were to win both houses, the stimulus we’ve gotten could be in jeopardy. That’s been an overhang.”
“There really aren’t fundamentals issues, though maybe there’s some trepidation going into earnings season that all the good is already in there and that potential issues could surface.”
Oliver Pursche, vice-chairman and chief market strategist, Bruderman Asset Management, New York
“It’s probably the beginning of the correction. It’s the third inning. It’s going to come down to earnings. The big concern isn’t really what third quarter earnings numbers are, but really what the outlook for the fourth quarter and first quarters are. You’ve seen the impact of tariffs, that could cause some pretty significant revisions to fourth quarter outlook. We don’t know, but I suspect that’s one of the things underlying market concern. What is happening for sure, given the volume, is selling begets selling. There’s a compound effect.”
Trip Miller, managing partner, Gullane Capital Partners, Memphis
“There are two stories to this. This is not an economic story. The economy is strong and unemployment is at multi-year lows. The market has been on a 10-year bull run and we have seldom seen a 10 per cent correction during that time. Every time we get around that number, markets come rallying back. What’s different now is that the 10-year bond yield is much higher. I think we’re getting an overdue correction in the market.”
“We think this is an overdue pullback on valuations and some fears about interest rates.”
Sandy Villere, portfolio manager, Villere & Co., New Orleans
“One thing that people can count on is that when interest rates go up it can throw a cold towel on an overheating economy and that’s what it looks like is happening now. With the trade war, the small cap names are going to be more protected than the larger cap names that have more exposure and have to sell abroad. The small caps are more of a safe haven from trade concerns and the dollar going up. Tech and the areas that have been pretty overdone on the upside are under pressure today while some of the more value-oriented names are really holding in there.”
Paul Nolte, portfolio manager, Kingsview Asset Management, Chicago
“From my perspective, it’s interest rates. We thought we would get a pause here at 3, 3.1 per cent on the 10-year bond and we kind of blew through that. We have inflation numbers this morning that were slightly hot and we have CPI tomorrow so we have something more to worry about. And the Treasury auction that didn’t go all that fabulous, so we have a lot of supply coming on the market, not a ton of demand, and that is pushing interest rates up. You have got investors now fretting.”
Mona Mahajan, U.S. investment strategist, Allianz Global Investors, New York
“More than 50 per cent of 10 per cent corrections either end or occur in October. A 5 to 10 per cent correction is likely here. We saw a similar thing happen in February when rates moved up and we had a 10 per cent correction as the market digested that. When we take a step back and look at the fundamentals picture there still some things to be positive about including a very strong U.S. economy and earnings growth that will probably reach over 20 per cent this year.
“We’re in a time period where growth is robust and inflation, while there’s a pickup in chatter about inflation, the numbers have been somewhat benign. It’s a pretty good environment for investors still.
“Six months following midterms tend to be quite strong and November and December tend to be quite strong. Whether or not that repeats I don’t know but if we are setting up for something similar, this could be an interesting buying opportunity.
“The economy can probably absorb this rate move without seeing too much dislocation or economic deterioration. The markets are a little startled by the speed of it.
“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 … What we’re seeing here is the market positioning for potential lower growth going forward.
“We may see some of this reverse as we head into the end of the year. That’s what we’re hopeful for if the U.S. economic story remains intact. It’s still intact. Fundamentals haven’t changed materially.”
Market reaction stocks: The Dow was down 542 points, or 2.05 per cent on track for its biggest daily percentage fall since April 6. The S&P 500, was 2.06 per cent lower also threatening the sharpest fall since April 6. The tech-heavy Nasdaq was down 2.52 per cent, tracking for its sharpest fall since April 2.
Treasuries: The yield on the U.S. 10-year Treasury note firmed to 3.2215 per cent. VIX: The Cboe volatility index jumped 26 per cent to 20.03, its highest since April 11. Dollar: The U.S. dollar index was off 0.25 per cent