(Bloomberg) -- The Dow Jones Industrial Average tumbled 600 points in the biggest plunge since Donald Trump’s election, as a rout in the bond market spilled into equities.
Strong jobs data that increased the likelihood the Federal Reserve will lift rates next month sent bond bulls scurrying and rattled equity investors who haven’t seen a week this bad in two years. The selling accelerated after Dallas Fed President Robert Kaplan suggested more than three hikes may be necessary this year. The 10-year Treasury yield popped above 2.85 percent for the first time since January 2014.
“Yields have risen, inflation evidence is rising rather broadly. It’s that combo of factors that’s starting to mount,” Jim Paulsen, chief investment strategist at Leuthold Weeden, said by phone. “And then you get a report, and that’s the straw that breaks the camel’s back, and that’s kind of what we got into today.”
There was nowhere to hide on the stock market, with all 11 S&P 500 sectors lower. The index’s five-day rout topped 3.5 percent -- marking its first pullback of at least that much in a record 404 days. Energy shares sank 4 percent as earnings disappointed and crude slumped. The tech selloff worsened, sending the Nasdaq 100 Index lower by 1.7 percent. It’s on track for the worst week since February 2006. Not even a record rally at Amazon.com Inc (NASDAQ:AMZN). could rescue the measure, as the world’s biggest company, Apple Inc (NASDAQ:AAPL). hit its lowest since October.
“People are finally starting to reprice reflation, it’s about time,” Jeanne Asseraf-Bitton, head of global cross-asset research at Lyxor Asset Management, said by phone. “Global economic growth is strong and corporate earnings are very solid, so there’s no reason to question the equity bull market. The rise in bond yields is good, it’s just the speed at which it’s happening that is making investors nervous. Bottom line: this is a healthy correction.”
U.S. hiring picked up in January and wages rose at the fastest annual pace since the recession ended, as the economy’s steady move toward full employment extended into 2018. Equities are being tested by the surge in bond yields, with some fund managers saying 3 percent U.S. 10-year rates would signal a bond bear market. The level is seen by many stock-watchers as a potential trigger for a correction in equities.
In Europe, a bond selloff deepened across the continent, and equities dropped for a fifth straight day, the longest streak since November. Disappointing results from companies including Deutsche Bank AG (DE:DBKGn) and BT Group (LON:BT) Plc. paced losses, with Germany’s DAX giving up the year’s gains, capping the worst weekly decline since 2016. Bund yields reached a fresh two-year high, while the euro and British pound weakened. Japanese debt gained and the yen declined after the Bank of Japan intervened to stem the rise in rates.
Elsewhere, oil edged lower, though still trading near its highest level since 2015 in New York. Bitcoin continued to slide after a miserable January, falling below $8,000.
Terminal users can read more in our markets blog.
These are the main moves in markets:
Stocks
- The S&P 500 Index fell 1.9 percent at 3:11 p.m. in New York. The Nasdaq 100 Index lost 1.5 percent and the Dow Jones Industrial Average sank 2.3 percent.
- The Stoxx Europe 600 Index decreased 1.4 percent, wiping out gains this year with its fifth consecutive decline.
- Germany’s DAX Index sank 1.7 percent, the most since June. It closed a four-month low.
- The MSCI Asia Pacific Index fell 0.7 percent.
- Topix index fell 0.3 percent, Hong Kong’s Hang Seng Index dropped 0.1 percent, the Kospi index declined 1.7 percent, Australia’s S&P/ASX 200 Index rose 0.5 percent.
Currencies
- The Bloomberg Dollar Spot Index gained 0.8 percent, the largest rise in more than 10 weeks.
- The euro declined 0.1 percent to $1.2492.
- The British pound fell 0.3 percent to $1.4223.
- The Japanese yen fell 0.4 percent to 109.87 per dollar, the weakest in more than a week.
Bonds
- The yield on 10-year Treasuries rose four basis points to 2.8335 percent. It touched 2.8525 earlier.
- Germany’s 10-year yield rose five basis points to 0.77 percent, the highest in more than two years.
- Japan’s 10-year yield dipped one basis point to 0.086 percent.
Commodities
- West Texas Intermediate crude fell 1.2 percent to $65 a barrel.
- Gold decreased 0.2 percent to $1,345.59 an ounce.
- Copper gained 0.1 percent to $3.21 a pound, the highest in more than a week.
