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As the bond market rallied on a flight to safety, all three major US stock indexes turned sharply lower, with economically sensitive transports down the most.
“We’re still effectively at all-time highs, so I wouldn’t read much into today’s market action,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York.
“The bond market is reflecting that the probability of there being material inflation over a long period of time is very unlikely, and that’s the fear that had been driving yields higher” before the recent rally, Pursche added.
“We’re in a Goldilocks scenario, with enough growth to support the economy but not so much that the Fed changes policy beyond what they’ve already announced,” Pursche said.
On Wednesday, the US Federal Reserve released minutes from its latest monetary policy meeting, which showed the central bank does not yet believe the economy has fully recovered, yet a debate on tightening policy has begun in earnest.
The Dow Jones Industrial Average fell 0.8 percent to 34,421, the S&P 500 lost 0.9 percent to 4,320 and the Nasdaq Composite dropped 0.7 percent to 14,559.
Sensing cracks in the US economic recovery, traders covered short positions in the bond market. The yield of the benchmark 10-year US Treasury note fell for the eighth consecutive session.
The number of US workers filing first-time applications for unemployment benefits unexpectedly ticked up to 373,000 last week, a sign that the US labour market recovery remains choppy.
Beijing’s ongoing clampdown on US-listed Chinese companies fed into the risk-averse mood.
Since China’s opening salvo over the weekend against ride-hailing app Didi Global, Beijing has broadened its scrutiny beyond the tech sector.
Didi shares extended their drop, while Alibaba Group and Bidu both ended the session lower. (Reuters)