Stocks Just Suffered Their Worst Loss in Months. Here's Why

Stocks have slumped over the last week as a combination of strong economic data and positive commentary from Federal Reserve leaders sent bond yields rocketing higher as investors bet that interest rates will keep rising.

Gold stocks rose by more than two per cent on a higher price of gold.

Stocks are in the midst of a scary October slump, sliding sharply because investors are anxious about rising interest rates.

"The tax cuts juiced earnings this year and that's not sustainable", he said. "The market's starting to say that the glass may be half empty".

"We've scratched our heads about the rise in stocks for the past 18 months".

The Dow and the S&P 500, the benchmark for many index funds, lost more than 3 percent. The benchmark US stock index hadn't suffered a five-day losing streak since November 2016, just before the presidential election.

The Nasdaq composite, with a large contingent of tech stocks, tumbled 315.97 points, or 4.1 percent, to 7,422.05. It's fallen 6.3 percent over the last five days.

The Dow Jones Industrial Average closed with a drop of 831 points in afternoon trading. The S&P 500 was off by 1.7 percent, putting it on pace for its first five-day losing streak in two years. That was its biggest loss since March 22. Within the index, 26 stocks fell, 20 gained and four were unchanged.

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

Stock in all 30 blue-chip index companies fell, with Boeing and Caterpillar dropping at least 3.8 per cent.

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Bear markets since 1975 have had far lower percentage drops at their bottom, even as markets have grown remarkably in inflation-adjusted dollars. Berkshire Hathaway dipped 4.7 percent to $213.10 and reinsurer Everest Re slid 5.1 percent to $217.73.

Adding to the worries was the impact of Hurricane Michael on insurance companies as well as fears about demand in China which weighed on luxury brands such as Tiffany - down 10% - as well as Ralph Lauren, which was off 8%.

YIELDS: 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. Yields on 3-year notes have recently traded just above 3.0 percent, providing long-absent competition for investment returns with equities. Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.

Stocks from emerging markets were also hard hit.

Adams, of Bloomberg Intelligence, said investors have concerns about their future profitability, too.

SEARED: Sears Holdings 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 NZX50 fell 1.15 per cent last week and this week is down around 1.8 per cent.

WINNERS AREN'T WINNING: Tech stocks and companies that sell non-essentials to consumers have been some of the top performers over the past year, almost doubling the performance of the S&P 500.

The broader All Ordinaries was down 124.9 points, or 2.03 per cent, at 6,038.9, while the Australian dollar was buying 70.65 U.S. cents from 70.13 on Wednesday.

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