Dow tumbles on rate worries after this week’s record highs

US STOCKS-Wall St set to open lower as Treasury yields jump
October 4, 2018
Stock futures point to modest losses after payroll report
October 5, 2018

Dow tumbles on rate worries after this week’s record highs

This economy might be too much of a good thing.

Traders were in sell mode Thursday on worries that a recent string of strong economic data will push the Federal Reserve to raise rates more aggressively to prevent the US economy from overheating.

The Dow Jones industrial average — which hit two consecutive all-time highs earlier this week on optimism about trade — fell as more than 356.78 points in afternoon trades before paring loses to end down 200.91 points at 26,627.48.

All eyes will be on the Labor Department Friday morning as it is expected to report that 180,000 jobs were added to the economy in September.

Any report that wildly exceeds projections is expected to put a pause on the market’s historic nine-year bull-run as investors fear a more aggressive Fed.

“A blowout report would have an adverse effect on the market,” Mona Mahajan, US investment strategist at Allianz Global Investors, told The Post.

“The market takes that as the Fed goes full-steam ahead,” Mahajan said.

Some of those fears were present in Thursday’s trading as the yield on the 10-year Treasury note rose to just above 3.2 percent — its highest level in seven years. Bond yields move inversely to price.

The broader S&P 500 and tech-weighted Nasdaq joined in on Thursday’s sell-off, falling 0.8 percent and 1.8 percent, respectively.

“Traders are positioning themselves ahead of [Friday’s] numbers,” Peter Cardillo, chief market economist at Spartan Capital Securities, told The Post.

Although analysts are expecting the Labor Department an increase of 180,000 jobs, a report released Wednesday by ADP and Moody’s Analytics showed 230,000 jobs added — hinting that Friday’s figures could be similarly strong.

While a robust jobs report bodes well for households, a report that is too strong — and a Fed overreaction to it — could eventually pinch wallets.

“As rates start to move up, you notice what happens to the real economy,” Mahajan said, referring to increases in interest rates on mortgages, cars and credit cards.

“This is all about rising yields. There’s been a slew of Fed speakers [this week] and they’re all singing the same tune,” Cardillo said.

On Wednesday Fed Chair Jerome Powell stoked Wall Street worries when he said at a conference that interest rates were “a long way from neutral” — hinting that Fed would continue raising rates to prevent the economy from overheating.

But for all the glum faces on Wall Street Thursday, there still was room for hope — even in a rate-raising environment.

Trading tensions between the US, Canada and Mexico eroded after the three reached a new trade deal to replace NAFTA earlier this week. And positive employment data has not yet spurred runaway inflation.

“The Fed is going to continue to raise rates for the right reasons — reasons of economic strength, instead of inflation,” Cardillo said.

“Yields spiking up this week have caught many by surprise and some repricing is happening; however, the reason yields are rising are positive, not negative,” Jamie Cox, Managing Partner for Harris Financial Group, said in a statement.