S&P tumbles 3 percent as US yields soar, investors shun risk

NEW YORK: US stocks tumbled on Wednesday, with the S&P 500 and the Dow marking their biggest daily declines since Feb. 8, and technology stocks were at the center of the carnage as rising U.S. Treasury yields sent investors fleeing from risky assets.

U.S. long-dated Treasury yields rose again in extension of a trend over the last few weeks fueled by solid U.S. economic data that reinforced expectations of multiple interest rate hikes over the next 12 months.

Investors also worried about the impact of trade tensions on corporate profits and Hurricane Michael's landfall in Florida adding to the uncertainty.

The Nasdaq registered its biggest daily drop since June 24, 2016, hurt by technology stocks which had their biggest one-day drop since August 2011. The S&P 500 ended the day down 3.3 percent, representing a 4.95 percent drop from its Sept. 20 record closing high.

"It's a bit of a blood bath today, clear risk-off action with few places to hide. Gold is up a little bit. The Vix is up more substantially," said Ed Campbell, senior portfolio manager at QMA, the asset management branch of Prudential Financial.

"It's primarily the cumulative effect of interest rate moves over the past five days and news reports about trade impacting companies," he said. "We saw stocks hanging in there pretty good as interest rates were moving and now they're starting to crack. Markets are starting to contemplate that this could be a Fed that's over-zealous in terms of interest rate hikes."

The Dow Jones Industrial Average fell 831.83 points, or 3.15 percent, to 25,598.74, the S&P 500 lost 94.66 points, or 3.29 percent, to 2,785.68 and the Nasdaq Composite  dropped 315.97 points, or 4.08 percent, to 7,422.05.

All three indexes had hit records between Aug. 30 and Oct. 3. The Russell 2000 small-cap index closed down 2.9 percent.

Mona Mahajan, U.S. investment strategist at Allianz Global Investors in New York, said the market could potentially sell off as much as 10 percent from its records before advancing again.

"The market is digesting the potential that rates moving  upwards eventually seep into the real economy in the form of mortgage rates, auto rates, student lending rates," Mahajan said. "What we're seeing here is the market positioning for potential lower growth."

But assuming economic growth stays intact, "this could be an interesting buying opportunity," according to Mahajan, who said equity markets tend to perform well in the six months after U.S. midterm elections.

The S&P technology sector dropped 4.8 percent, with Apple Inc creating the biggest drag with a 4.6 percent decline.

The communications services,, consumer discretionary, energy and industrial sectors all showed declines of more than 3 percent.

The energy sector was one of the biggest losers for much of the day as U.S. oil production was decimated while the industry waited out Hurricane Michael.

The CBOE Volatility Index, Wall Street's "fear gauge," rose 7 points, or nearly 44 percent, to 22.96, going above 20 for the first time since April 11 and hitting its highest close since April 2.

The best performer in the sea of red was the defensive utilities sector, which closed down 0.5 percent.

Tim Ghriskey, chief investment strategist at Inverness Counsel in New York said risk parity funds could have made the sell-off more pronounced.

"Risk parity has influence in any market by accentuating the change in asset class exposure," said Ghriskey.

Declining issues outnumbered advancing ones on the NYSE by a 7.27-to-1 ratio; on Nasdaq, a 7.05-to-1 ratio favored decliners.

The S&P 500 posted 12 new 52-week highs and 47 new lows; the Nasdaq Composite recorded 12 new highs and 227 new lows.

On U.S. exchanges 9.86 billion shares changed hands compared with the 7.42 billion average for the last 20 trading sessions.