Just two weeks after Federal Reserve Chairman Jerome Powell praised the growth of the economy and not long after the S&P 500 reached historic highs, the Dow Jones Industrial Average took a 800-point gut shot at the close of Wednesday’s trading session, possibly signaling the extended bull run is ready to make its final curtain call.
Leading the rout were familiar technology names like Apple, Google, Facebook and Netflix–the same group responsible for much of the growth experienced during the historic bull run seen in U.S. equities.
“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 experienced its worst drop since February, while the Nasdaq Composite shed 4% and the S&P 500 finished with its longest losing streak since 2016 with a loss of over 3%.
Shares of Boeing Grounded
The pain felt in the markets today wasn’t relegated to the technology sector as shares of aircraft manufacturer Boeing took a 4.58% hit today and over 5% the last five days. The drop comes as a surprise, particularly after the company reported a stronger-than-expected 737 deliveries during the month of September.
Nonetheless, some market experts posit that this latest market correction is a healthy sign for U.S. equities.
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Yields Continue to Climb
As U.S. equities plunged, the benchmark 10-year Treasury note and 30-year note continued their upward trajectory. The 10-year yield ticked higher to 3.227 before settling to 3.191 at the market close, while the 30-year rose to 3.373.
The rise comes as the wholesale cost of U.S. goods and services retreated during the month of September. The producer price index did rise 0.2% according to the Labor Department, which was in line with expectations based on a poll of economists.
“This latest inflation data corroborates our view that the Fed is likely to move ahead with another rate hike in December, bringing this year’s total to four,” economists at Oxford Economics wrote.
U.S. Sends Trade Warning to China
A slide in the capital markets is not complete without trade wars as Treasury Secretary Steve Mnuchin issued a warning to China, saying the world’s second largest economy better not weaken its currency as both the U.S. and China attempt to ameliorate their trade disputes. Mnuchin apprently told the Financial Times that the Treasury Department will keep China’s currency market under close watch, which could be part of a trade deal as discussions between the two economic superpowers continue.
“As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations,” said Mnuchin. “The renminbi has depreciated significantly during the year. We are going to absolutely want to make sure that as part of any trade understanding we come to that currency has to be part of that.”
The drop in the markets today come as banks like Citigroup and Wells Fargo are scheduled to report third quarter earnings later this week. A FactSet poll of analysts reveal a 19% rise in third quarter earnings is expected, but the fear of trade wars could keep investors fretting in the coming quarters.
“There are just too many concerns about the rise in input costs,” said Art Hogan, chief market strategist at B. Riley FBR. “Ongoing concerns about the stronger dollar and trade are being input into corporate guidance, and that is not good.”
“This goes back to the assumption that the market made wrongly … that once we got NAFTA 2.0 done, we’d pivot to China,” added Hogan. But “the rhetoric on China has only gotten worse, not better.”
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