Wall Street tried to find its footing today after Wednesday's massive rout, but sellers still dominated as U.S. stocks dropped hard for a second day in a row on Thursday. The selling underscores investors' concerns over rising interest rates and a trade war, despite inflation data that was weaker than expected.
The Dow was briefly in positive territory twice earlier in the day, but it wound up closing down another 546 points, or 2.1 percent, on Thursday. The S&P 500 sank 2.1 percent, marking its sixth day of decline. Nasdaq ended 1.3 percent lower.
Bond yields, which have spiked over the last week, slid on Thursday after the Labor Department said consumer prices grew only slightly in September. That's a sign inflation remains under control and suggests the Federal Reserve won't have to raise interest rates at a faster pace, which initially gave stocks a modest boost.
The sell-off began on Wednesday when the Dow plunged 832 points, or 3.1 percent. It was the second-biggest drop of the year for the blue-chip benchmark after Feb. 5, when it lost over 1,100 points in a single trading session.
Following the plunge, President Donald Trump said the Federal Reserve "is making a mistake" to hike interest rates. "I think the Fed has gone crazy," he charged.
The market is reacting to a "triple whammy" of rising interest rates, higher oil prices and a stronger dollar, according to Yardeni Research.
"The rally since early February may be stalling out on confusion about Trump's policies," Ed Yardeni, president and chief investment strategist, and his analysts wrote in a research note. "He seems to be stepping on the accelerator and brakes at the same time."
While corporate tax cuts are boosting earnings, the ongoing trade war with China may disrupt supply chains and worsen, given the issues aren't only about trade but national security, he added.
Technology stocks have taken the brunt of the losses. Francis Tan, an investment strategist at UOB Private Bank, said "the valuation of U.S. stocks, especially tech stocks, is still pretty high," suggesting markets could further to fall.
In morning trade on Thursday, investors were briefly reassured by a smaller-than-expected rise in inflation. The Consumer Price Index, a widely used measure of inflation, rose 0.1 percent in September, below the 0.2 percent increase expected by some economists. The figure calmed investors because a high reading could fuel expectations that the Fed would keep raising its interest rates at a steady pace. Higher rates are a concern for investors because of their potential to eat into corporate earnings.
"The -4.2 percent drop in the S&P 500 over the past five days has been triggered in part by fears over corporate earnings as trade uncertainties, rising input costs and higher interest costs start to bite," said economist Louis Gave of Gavekal Research in a report. "Suddenly, the market's assumption that the U.S. corporate sector is an island of stability is coming under greater scrutiny.
Investor sentiment also has been dampened by the escalating trade fight between the U.S. and China. The International Monetary Fund cut its outlook for global growth this week, citing interest rates and trade tensions.
Adding to potential U.S.-China tensions, the Justice Department announced Wednesday it arrested an official of China's Ministry of State Security on charges of trying to steal trade secrets from U.S. aerospace companies.
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