Dow drops 800-plus points as bond yields fuel stocks’ worst day in several months

Rising interest rates. Concerns that the tax-cut fueled jump in corporate profits won’t last. A realization that the China trade war isn’t ending anytime soon — it all amounted to a toxic brew for investors Wednesday as U.S. stocks plunged to their worst loss in eight months.

The Dow Jones Industrial Average fell 832 points, or 3.1%, to 25,598.74 and the S&P 500 index sank 94.66 points, or 3.3% to 2,785.68 — a fifth straight day of negative returns for the benchmark index, something that hadn’t happened since just before the 2016 presidential election.

While the Dow’s point loss was the third-highest in history, its percentage drop wasn’t close to a record. (That would be 22.6% on Oct. 19, 1987.) Even so, the reversal sparked a debate over whether the years-long bull market in stocks might be starting to end or whether it was a temporary pullback after the market set fresh record highs in recent weeks.

The selloff “is a reaction from investors finally realizing we are in a higher interest-rate environment and, given the elevated level of stocks, market participants were likely looking for a reason to sell,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in a note to clients.

“The biggest thing going on in markets is you’re seeing an unwind,” said Sameer Samana, a global quantitative and technical strategist for Wells Fargo Investment Institute. “There is some concern on the part of investors where it’s like, ‘Is this the beginning of the end?”’

The losses were widespread, and stocks that have been the biggest winners on the market the last few years, including technology companies and retailers, suffered steep declines. Apple and Amazon both had their worst day in 2½ years.

The Nasdaq composite, which has a high concentration of technology companies, had its biggest loss in more than two years. The Nasdaq composite tumbled 315.97 points, or 4.1%, to 7,422.05. It’s fallen 7.5% in just five days.

The Russell 2000 index of smaller-company stocks shed 46.45 points, or 2.9%, to 1,575.41.

The biggest driver for the market over the last week has been interest rates, which began spurting higher following several encouraging reports on the economy amid the Federal Reserve’s campaign to raise interest rates to head off inflation.

Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.

Last month, Fed officials, by a unanimous vote, approved a quarter-point rise in its benchmark federal funds rate, bringing it to a target range of 2% to 2.25%, and additional rate hikes are expected in the coming months.

President Trump, who has previously criticized the Fed’s decision to raise rates, told reporters during a brief stop in Erie, Pa., that “the Fed has gone crazy” when asked about the market drop. “They’re so tight,” he added in reference to his perception of the central bank’s monetary policy.

Trump labeled the fall “a correction that we’ve been waiting for, for a long time.”

The White House said in a statement that the “fundamentals and future of the U.S. economy remain incredibly strong.”

Starting in the summer, Trump has repeatedly expressed unhappiness that the Federal Reserve is slowly raising its historically low benchmark interest rate.

The Fed has been inching up interest rates recently because the U.S. economy is doing better, with a goal of heading off inflation. Trump frequently boasts about the economic improvements, though he has implied that the central bank’s rate increases aren’t helping.

Such public criticism has been rare since the Fed was created in 1913 as the nation’s independent central bank.

Before Trump, the last time a sitting president publicly criticized the Fed on interest rates was in June 1992. President George H.W. Bush, who was in a tough reelection battle in the wake of a recession, told the New York Times that he would like to see a decline in rates. The Fed cut its benchmark rate the next week, and again a few months later. Bush lost the election anyway.

On Wednesday, the yield on benchmark 10-year bonds ticked up as high as 3.24% before settling at at 3.20%.

“When rates spike like they have, some reaction is unavoidable,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

The fear of the lingering trade war helped take down the consumer-goods segment.

Luxury retailers tumbled after LVMH, the parent of Louis Vuitton, said its sales growth in China slowed. Tiffany plunged 10.2% to $110.38 and Ralph Lauren fell 8.4% to $116.96.

LVMH’s Chief Financial Officer Jean-Jacques Guiony said on a call with analysts that Chinese customs authorities are stepping up border checks on returning travelers.

And with earnings season ready to kick off later this week, Alec Young, managing director of global markets research at FTSE Russell, said investors are starting to wonder how long corporate profits can remain high.

“The tax cuts juiced earnings this year and that’s not sustainable,” Young said. “The market’s starting to say that the glass may be half empty.”

Technology and internet-based companies are known for their high profit margins, and many have reported explosive growth in recent years, with corresponding gains in their stock prices. On Wednesday, they took big hits.

Apple gave up 4.6% to $216.36 and Microsoft dropped 5.4% to $106.16. Amazon skidded 6.2% to $1,755.25. Industrial and internet companies also fell hard. Boeing lost 4.7% to $367.57 and Alphabet, Google’s parent company, gave up 4.6% to $1,092.16.

These “very highly valued, marquee companies,” and when sold off they “can hurt on the downside as they have helped on the upside,” McMillan said.

Unexpected bad news came to the insurance sector, which fell as Hurricane Michael came ashore in Florida bringing winds of up to 155 miles an hour. Berkshire Hathaway dipped 4.7% to $213.10 and reinsurer Everest Re slid 5.1% to $217.73.

Sears Holdings also nosedived after the Wall Street Journal reported that the struggling retailer hired an advisory firm to prepare a bankruptcy filing that could come within days. The stock fell 16.8% to 49 cents. It was more than $40 five years ago.

Sears has closed hundreds of stores and sold several famous brands or put them on the block as it sees more customers abandon its stores.

Despite the market’s steep drop, “the economic foundations here in the U.S. remain solid,” McMillan said. “Under such conditions, while the pullback might get worse it is unlikely to be sustained.”

But Ripley said the upward pressure on rates by the central bank will continue and that will weigh on stocks.

“We are witnessing the repercussions in the markets as the Fed takes the punch bowl away from the party,” Ripley said.

Staff writer Jim Puzzanghera and Bloomberg contributed to this article.

UPDATES:

4:30 p.m.: This article was updated with staff reporting throughout, including analysts’ comments and background on past disputes between the White House and Federal Reserve.

2:50 p.m.: This article was updated throughout with staff and wire reports and additional analysis.

1:30 p.m.: This article was updated with major indexes’ closing levels, as well as additional details and context.

1 p.m.: This article was updated with the close of markets.

11:50 a.m.: This article was updated with more recent market results.

9 a.m.: This article was updated with more recent market results.

This article was published at 7:15 a.m.