Stocks dropped to their lowest value since February as investors grow wary of rising interest rates in the US and ongoing trade tensions with China.

By Daniel Herborn

Posted on October 11, 2018

The Standard & Poor’s 500-stock index saw its fifth straight day of decline and finished trading down 3.3%. It has now endured the longest run of down days since November 2016.

The bearish outlook for the market is also partly a result of fears that inflation will spike and lead the Federal Reserve to pull the lever of raising its interest rates.

Tech stocks swoon

Shares in tech giants Microsoft and Intel both fell more than 3.5% each. Similarly, Netflix was down 8.2% and Amazon plunged 6.2%. Facebook and Apple also fell more than 4% each. For both Apple and Amazon, it was the worst trading day they have endured in more than two and a half years.

The results reversed a pronounced trend this year of tech stocks propping up the stock market.

“People are getting out of the high-flying tech names right now,” said Larry Benedict, CEO of The Opportunistic Trader. “I think people are under-hedged; there could be more pain ahead.”

The Dow Jones Industrial Average ended trading 831.83 points lower and the Nasdaq Composite also dropped 4%.

For the overall tech sector in the S&P 500, it was the worst day in seven years, dropping 4.8%.The results continued a rough month for all three stock markets. For October, the S&P 500 and the Dow are down more than 4.4% and 3.3% respectively while the Nasdaq has plummeted by more than 7.5%.

Analysts say the market has fallen as a result of trade uncertainty and a likely rise in interest rates

US President Donald Trump recently restated his threat to hit China with another round of tariffs on US$267 billion of goods if they retaliate to Washington’s most recent tariffs.

Ed Campbell, Senior Portfolio Manager at QMA, described the day’s trading as a “blood bath”

“It’s primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies,” he said.

Sandy Villere, Portfolio Manager at Villere & Co, said the trade war was causing greater exposure to larger cap names who are more trade-sensitive. “Tech and the areas that have been pretty overdone on the upside are under pressure today,” he said.

Mona Majahan of Allianz Global Investors said the market was responding to a likely rate move. “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.”

Embattled automobile company Ford was also impacted, with its share price dipping below US$9 for the first time in six years. The value of shares in the company have fallen around 28% this calendar year.