News Analysis: U.S. stocks may face further declines after steep drop amid uncertainties

Source: Xinhua| 2018-10-12 16:02:16|Editor: xuxin
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NEW YORK, Oct. 11 (Xinhua) -- After major indexes suffered steep losses sparked by higher rates and a sell-off in tech shares in the previous session, U.S. stocks could face further declines, according to analysts.

All three major indices, the Dow, the S&P 500 and the Nasdaq reported declines of more than 5 percent over the last two days.


Investors dumped riskier assets in favor of traditional safe havens like bonds and gold amid uncertainty, according to strategists.

"This comes down to the way markets function. After a big sell-off you have investors that are forced to sell to cover positions due to leverage or based on the size and speed of the move for optionality," Larry Benedict, CEO & Founder of The Opportunistic Trader, a U.S. market research firm, told Xinhua.

The selling was widespread Thursday after the market experienced drastic fluctuations. The Dow traded more than 84 points higher at its peak, then slid as much as 698.97 points or more than 2.7 percent at its low of the day and closed at 545.91 points lower at 25,052.83. The index plunged more than 1300 points over the two sessions, the biggest two-day drop since February.

The S&P 500 and the Nasdaq also tried to rebound from Wednesday's rout in earlier trading but failed to secure their gains at the close.

"Today we are seeing a lot of intraday volatility. That means people are unsure of what's going on," Matthew Cheslock, a trader at Virtu Americas LLC told Xinhua.


The U.S. stock market was under pressure due to increasing concerns over rate hikes since the beginning of October.

"The U.S. stock market was driven lower as expectations for the pace of higher U.S. interest rate hikes takes effect," said Brendan Ahern, chief investment officer at Krane Funds Advisors, LLC, a U.S. asset management firm.

Treasury note yields have ticked up, boosted by strong economic data and comments from top Federal Reserve officials, indicating more interest hikes could be on the horizon.

The benchmark 10-year Treasury note yield hit 3.26 percent on Tuesday, the highest level since 2011. On Wednesday, two-year Treasury yield hit 2.91 percent, its highest level in a decade.

Investors have been fretting over a sharp rise in Treasury yields, fearing that rising borrowing costs could slow down the economy. Those fears were quelled slightly by the release of weaker-than-expected inflation data on Thursday.


Experts said the reasons behind the downwardness of the market are more complicated.

"Valuations of the market are above their historic average and elevated compared to stock markets globally. The U.S. stock market is also beginning to believe the U.S. is unlikely to come out of a trade war unscathed," said Ahern.

The market was overbought, and signals including less liquidity from global central banks and trade tensions had been ignored for months, Benedict said, adding that the recent huge money flow from emerging economies to the U.S. market as a "safe haven" was dangerous.

Analysts also believe there would be further room for downside, although not necessarily a crash or crisis.

According to Benedict, slower global growth, trade tensions and central banks' not easing could drive equities lower.