U.S. and global stocks slid Thursday as interest rates in the United States continued to rise. Technology and internet companies skidded, and the Nasdaq composite took its biggest loss in three months.
Strong reports on job gains and the service industry have sent bond prices tumbling over the last two days as traders bet the U.S. economy will keep growing at about its current clip. Government bonds are stable investments that look most appealing when economic growth is shaky, so investors sold those bonds in the United States and Europe.
But the big drop in bond prices sent interest rates sharply higher, a development that worries investors because it can eventually slow economic growth by making borrowing more expensive for consumers and businesses. It also makes bonds a more intriguing investment than stocks.
Sameer Samana, strategist for the Wells Fargo Investment Institute, said that after months of positive economic data, traders in the bond market are selling because they’ve decided yields are too low for them to get a good return on their investments.
“Economic data for months has been strengthening,” he said. “The bond market has completely ignored it until recently.”
The Standard & Poor’s 500 index skidded 23.90 points, or 0.8%, to 2,901.61. The Dow Jones industrial average slid 200.91 points, or 0.7%, to 26,627.48. The Nasdaq composite dropped 145.57 points, or 1.8%, to 7,879.51. The Russell 2000 index of smaller-company stocks sank 24.38 points, or 1.5%, to 1,646.91.
Bond prices fell again. The yield on the 10-year Treasury note climbed to 3.18% from 3.16%. Yields began climbing Wednesday because of encouraging signs on hiring by private companies and growth for services companies.
That data suggest the U.S. economy should keep growing at a solid pace. That translates to bigger profits for U.S. companies and continued increases in interest rates by the Federal Reserve, which raises rates to keep inflation in check. But after an early rally Wednesday, investors have been considering the negative aspects of that increase in yields.
The health of the economy and the pace of inflation will be in focus Friday morning after the Labor Department makes its monthly jobs report. That will include hiring by governments and private companies in September, as well as data on wage increases. Stocks plunged in February after the department said wages rose sharply the month before.
Alphabet, Google’s parent company, dropped 2.8% to $1,177.07, its biggest loss in five months. Apple fell 1.8% to $227.99. Microsoft slid 2.1% to $112.79. Facebook skidded 2.2% to $158.85, and Amazon declined 2.2% to $1,909.42.
Still, Samana said investors aren’t shying away from the stock market because many are still buying shares of companies that have been left out of the market’s recent gains. Bank stocks have made tiny gains this year, but they climbed Thursday because higher interest rates mean banks can make bigger profits on mortgages and other types of loans. Bank of America shares rose 1.4% to $30.43, and Wells Fargo stock climbed 1.6% to $53.51.
Industrial and energy companies have both lagged behind the broader S&P 500 in 2018. Those stocks fell Thursday, but they did better than the rest of the market.
The same pattern played out in Europe as stocks and bond prices fell. France’s CAC 40 sank 1.5%. Britain’s FTSE 100 tumbled 1.2%. The DAX in Germany lost 0.4% as trading resumed after a national holiday.
Hong Kong’s Hang Seng index sank 1.7%, Japan’s Nikkei 225 index lost 0.6%, and the Kospi in South Korea slid 1.5%.
Shares sank in India as the rupee continued to weaken and investors worried about the country’s trade deficit thanks to surging costs for oil imports. The Sensex index fell 2.2%.
Deals hopes boosted shares of some companies. Barnes & Noble soared 21.8% to $6.65 after the bookseller said it will review offers from potential buyers, including one from founder and chairman Leonard Riggio, its biggest shareholder. The stock is still slightly down in 2018 and has lost almost two-thirds of its value since July 2015.
Business software companies Hortonworks and Cloudera said they agreed to combine in an all-stock deal. Cloudera shareholders will own most of the new company, which the two sides said will be worth $5.2 billion. Cloudera shares jumped 11.5% to $19.05. Hortonworks jumped 11.9% to $24.48.
Benchmark U.S. crude slid 2.7% to $74.33 a barrel in New York after hitting four-year highs this week. Brent crude, used to price international oils, fell 2% to $84.58 a barrel in London.
Wholesale gasoline fell 1.7% to $2.10 a gallon. Heating oil fell 1.5% to $2.40 a gallon. Natural gas slid 2% to $3.17 per 1,000 cubic feet.
Gold fell 0.1% to $1,201.60 an ounce. Silver fell 0.5% to $14.59 an ounce. Copper fell 2% to $2.78 a pound.
The dollar fell to 113.86 yen from 114.34 yen. The euro slipped to $1.1515 from $1.1517.