US stocks headed for their biggest two-day decline for five months, while yields on US benchmark government bonds rose again, as caution creeps into markets after one of the best starts to a year in recent history.
The S&P 500 Index fell the most in seven weeks and the Dow Jones Industrial Average slumped more than 200 points at one stage.
US healthcare shares led losses after Amazon, JPMorgan Chase, and Berkshire Hathaway announced plans for a joint unit that may disrupt the industry. Energy producers slumped with the price of crude. European equities had their worst day since November after Asian shares dropped.
Selling spread to other assets, with the 10-year Treasury yield pushing above 2.73%, the highest level since April 2014.
Equity markets are showing signs of wariness at the end of a hectic month as surging rates on government bonds test appetite for stocks at elevated valuations.
Investors are weighing whether stronger corporate earnings, a pick-up in economic growth, and optimism over US tax cuts can continue driving up prices in markets that recently touched their highest levels on record.
Goldman Sachs predicts a correction is on the horizon, but says any such pullback would be a buying opportunity. “It clearly is a worldwide reaction as investors have maybe started to take notice of how much the valuations have come up,” said Peter Jankovskis of Oakbrook Investments. “It’s very clear that this particular bout of selling is originating overseas.”
Bitcoin fluctuated around $11,000 before turning lower, and emerging-market stocks slumped.
In London, the UK’s top share index fell to five-week lows as investors took profits on miners and banks, so-called cyclical sectors which have enjoyed a strong start to 2018.
The Ftse 100 fell 1.1%, in line with a broader slide among European markets.
Joshua Mahony, market analyst at online broker IG, said that shares could rise again. “The global stock selloff has persisted into a second day, with overnight losses in Asia giving way to widespread selling in Europe and the US. Interestingly, with gold and the yen gaining ground over recent weeks, there has clearly been an underlying risk-off move waiting to rear its head,” he said.
Over the past fortnight the rally that has seen the Ftse 100 hit a series of record highs has sputtered due to the index’s heavy weighting in stocks which are sensitive to the economic cycle, such as financials and commodities.
While these sectors found favour with investors at the beginning of 2018, they have seen a retreat as investors have locked in profits.
“We like this kind of pullback. It’s been on the cards for some time,” said Ken Odeluga, market analyst at City Index. “With a good... return so far this month in the bag, it makes a lot of sense to take some money off the table.”
More defensive stocks were the biggest risers, with consumer goods group Reckitt Benckiser up 1.4% as a weaker pound helped big, international stocks gain ground.
However, shares in Domino’s Pizza touched their highest level since March 2017 after its fourth-quarter sales beat estimates. The pizza delivery firm said its annual pre-tax profit would be slightly ahead of market expectations.
- Bloomberg, Reuters, Irish Examiner