Stocks sink for 3rd day as Dow plunges 238 points
U.S. stocks kicked off the first day of the fourth quarter on a sour note, with the Dow diving as investors react to a tired bull market being dragged down further by worries about global growth, ongoing protests in Hong Kong and angst over October's reputation as a scary month for stocks.
And Ebola joined the mix of market worries as the day wore on.
The Dow Jones industrial average plunged 238.19 points, or 1.4%, to 16,804.71. The S&P 500 dropped 26.13 points, or 1.3%, to 1946.16 and the Nasdaq composite skidded 71.30 points, or 1.6%, to 4422.09.
"The bull is just a wee bit exhausted," says Edward Yardeni, president and chief investment strategist at Yardeni Research.
He adds the market is no longer cheap and with fresh risks on the horizon, investors are taking a time out and waiting to see how third-quarter earnings season plays out in coming weeks.
Concerns about the health of the global economy continue to weigh on Wall Street, as does the uncertainty surrounding how the Hong Kong protests will play out, Yardeni says.
Stocks in the Standard & Poor's 1500 hotels, airlines and casinos industry groups are down Wednesday on news of a confirmed Ebola case in the U.S.
"Ebola (is) having an effect on airlines and travel stocks, so yes that could be a component of (today's) selloff," says Gary Kaltbaum, a money manager at Kaltbaum Capital Management.
But whatever the reasons, perhaps stocks are in need of some slowing down, he says. "We haven't had a 10% correction in over two years … and we're way overdue. It would not be a bad thing."
Small cap stocks officially fell into correction territory as the Russell 2000 has now dropped 10.2% from its March peak.
The stock drop sent bond prices higher. The yield on the 10-year Treasury note dropped to 2.39% from 2.49% Tuesday. Yields move in the opposite direction of bond prices.
On Tuesday, the latest reading on eurozone manufacturing fell for the fifth straight month and a key manufacturing index in Germany slipped below 50, which signals contraction, for the first time since June 2013, according to Barclays. Adding to the angst was a weaker-than-expected ISM manufacturing report for September in the U.S.
"The problems suggest a challenging earnings environment due to overseas concerns," says Yardeni. "Any signals that the U.S. economy may not be able to offset weakness in the rest of the world raises questions about the profit outlook. Europe seems to be weighing more and more on the bull."
Wall Street is also closely monitoring the protests in Hong Kong, the latest geopolitical risk to weigh on markets and curb investor risk-taking. While the market has been able to shrug off global flare-ups in Ukraine, Iraq and now China, there's always a risk that one of these flashpoints will cause the market to rethink its bullish tone.
"Geopolitics have yet to hurt the bull so far, but that's not to say one of these events won't morph into a real threat to the market," Yardeni says.
October also makes investors uneasy, as it is a month known for major stock market crashes in 1929 and 1987.
Benchmarks in Hong Kong and mainland China are closed for the next two days because of holidays. However, Japan's Nikkei 225 index declined 0.6% to 16.082.25.
European stocks were hammered. The FTSE in Britain ended off 1% to 6557.52, Germany's DAX index dropping 1% to 9382.03 and the CAC 40 of France finishing 1.2% lower at 4365.27.
On Tuesday the Dow closed down 28.29 points, or 0.17%. The S&P 500 closed down 5.49 points, or 0.28%. The Nasdaq composite shed 0.28%.