After Wall Street's digital giants were limping overnight, Australian tech stocks have led the S&P 200 index to the lowest levels because of heavy losses, sending the market more than 2 percent lower. On Thursday i.e., October 11, 2018 the benchmark fell by 1.9 percent or 117 points to 5,932. While it earlier dropped to 5918.3 which is the lowest in almost six months’ time. The Dow Jones Industrial Average at the close in New York had a 3.2 percent drop and was more than 831 points lower.
Triggered by fears of an interruption in wage inflation, the NASDAQ fell 4.1 percent while the S&P shed 3.1 percent which was the biggest loss since the sell-off in February. Tech stocks were the focus of selling on Wall Street, with around $US320 billion erased from the Nasdaq over the session. Investors seem to be re-evaluating the dominant growth stocks, as US bond yields traded at 3.16 percent overnight. Federation Asset Management’s Greg Bundy said - It's the velocity that's throwing people off, talking about the speed of the rise in US 10-year Treasury yields.
He also said, “The more the US economy improves, then he quicker the US Federal Reserve has to raise rates”, If there's another selloff like the one in the US, it will be the silver lining. Then the Federal Reserve may pause in hiking interest rates. For its raising of official interest rates, US President Donald Trump lashed out at the Federal Reserve, in comments made on Wednesday in the US. Since late 2015, the Fed has been in a tightening cycle and is expected to hike again in December, he said the ‘Central bank is too tight’.
According to Simon Doyle at Schroders, US markets were informed for a selloff. Market expectations in terms of future earnings growth were optimistic and valuations were pretty full particularly in technology companies. He said, in a changing interest rate environment, rising tensions around tariffs and markets have the ingredients for a sell-off and trade that don't appear to be close to a resolution as the midterm elections approach.
The spectacular gains recorded by small caps and technology stocks are at risk in a rising yield environment. As at October 11, 2018, stocks like A2 Milk, Altium and Domain Holdings fell more than 5 percent, Afterpay Touch by 6.9 percent, Appen by 7.8 percent and WiseTech Global fell by 9 percent. JPMorgan Asset Management’s Kerry Craig said, "The downside is around technology stocks”. Set to kick off on Friday, investors are starting to worry if earnings are going to meet expectations with the US reporting season, there are extended valuations in the sector, he noted.
He added that, it's "pretty normal" still to get these spikes in volatility toward the end of the cycle, led by a 3 per cent rise for Resolute Mining, gold stocks were the only sector to advance firmly. He is not surprised that there were sell offs and thinks there will be a few more.
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