Stocks hit two-month low as rate-hike fears return

U.S. STOCKS plunged on concern that rising interest rates will drag down economic growth. / BLOOMBERG FILE PHOTO/MICHAEL NAGLE
U.S. STOCKS plunged on concern that rising interest rates will drag down economic growth. / BLOOMBERG FILE PHOTO/MICHAEL NAGLE

NEW YORK – The dread that gripped equity markets earlier in the week re-emerged Thursday as U.S. stocks plunged on concern that rising interest rates will drag down economic growth.

U.S. stocks fell to two-month lows after a nine-day swoon wiped out almost 9 percent in the S&P 500. The index’s 3.75 percent drop Thursday wiped out its gains for the year. The Dow plunged more than 1,000 points. The Cboe Volatility Index was more than double its level a week ago. Ten-year Treasury yields retreated from close to their four-year highs as stocks fell, while the yen found traction as a haven from the stock turmoil.

West Texas intermediate crude slid to its low for the year following a report showing record production from U.S. fields. Gold fluctuated.

Traders remain on edge after the resurgent threat of inflation and higher bond yields helped trigger the burst of volatility and a pullback across the overheated global equity market.

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Bulls may have to question the wisdom of buying the dip when more selling by speculators may be imminent. This week’s Treasury auctions have underwhelmed, raising the possibility that the debt selloff could steepen. Investors are also facing the prospect of Fed tightening, which could cool growth.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” said Doug Cote, chief market strategist at Voya Investment Management. “They could be in full panic mode right now.”

U.K. gilts sold off and the pound rose after the Bank of England lifted its forecasts for economic growth and suggested it may need to raise interest rates faster than previously indicated. The euro fluctuated as ECB member Jens Weidmann said the central bank will monitor the impact of the currency on inflation. The yuan earlier fell the most since the currency’s devaluation in August 2015 after China reported a much narrower-than-expected trade surplus as imports jumped.

Here are some events scheduled for the remainder of this week:

  • Earnings season continues.
  • The Bank of Russia is set to hold a rates decision Friday, with most economists forecasting a cut.

And these are the main moves in markets:

Stocks

  • The S&P 500 Index fell 3.7 percent as of 3:02 p.m. New York time.
  • The Dow Jones Industrial Average lost 4.1 percent and the Nasdaq 100 Index fell 4.2 percent.
  • The Stoxx Europe 600 Index dipped 1.6 percent.
  • The U.K.’s FTSE 100 Index sank 1.5 percent.
  • The MSCI Emerging Market Index fell 1.2 percent.

Currencies

  • The Bloomberg Dollar Spot Index advanced less than 0.05 percent. The euro fell 0.1 percent to $1.2247.
  • The British pound increased 0.2 percent to $1.3907, the first advance in a week.
  • The Japanese yen gained 0.6 percent to 108.68 per dollar.

Bonds

  • The yield on 10-year Treasuries fell one basis point to 2.83 percent.
  • Germany’s 10-year yield climbed two basis points to 0.76 percent.
  • Britain’s 10-year yield climbed seven basis points to 1.617 percent, the biggest surge in five weeks.

Commodities

  • West Texas Intermediate crude declined 2.4 percent to $60.31 a barrel.
  • Gold fell 0.1 percent to $1,317.57 an ounce.
  • Copper fell 0.4 percent to $6,845 per metric ton.
  • The Bloomberg Commodity Index fell 0.2 percent.

Sarah Ponczek and Jeremy Herron are reporters for Bloomberg News.