Stocks dive on Wall Street as investors debate interest rate hikes

Stocks dipped sharply at the end of the session on Wall Street after moving between losses and gains as investors weighed the impact of higher interest rates.

At the close in New York, the Dow Jones Industrial Average fell 380.83 points, or 1.5%, to 25,020.20 after a strong start prompted by official data showing US economic growth had been revised down in the fourth quarter of last year..

The S&P 500 fell 1.1% to 2713.83 and the Nasdaq Composite dropped 0.8% to 7273.01.

Volatility has returned to the market one group of investors say the declines are a buying opportunities with global earnings and the economic backdrop looking stronger than they have in years.

Others aren’t so sure, though, fearing a pickup in inflation might encourage central banks to tighten monetary policy more quickly than anticipated.

The S&P 500 has had 12 trading days with moves of at least 1% in either direction in February, its most since January 2016.

“I think what we’re going to see is something of a tug of war between those different forces,” said Kristina Hooper, chief global market strategist at Invesco. “That is likely to continue for some time.”

The revised GDP figure of 2.5% for 2017, down from 2.6%, came after new Federal Reserve shairman Jerome Powell’s bullish remarks day earlier pushed the yield on the benchmark 10-year US Treasury note back near a four-year high and sent the S&P 500 and Dow to their worst day since February 8.

Four rate hikes tipped
Roughly 37% of investors now expect that the Fed will raise interest rates at least four times this year, compared with about 28% a week ago, according to CME Group data. The central bank has previously projected three rate increases for this year.

“People were so certain about the future a few months ago, you now have uncertainty about what growth and inflation will do,” said François Savary, chief investment officer at Geneva-based advisory firm Prime Partners. “Suddenly people realise we are moving into the late stage of the economic cycle.”

The 10-year Treasury yield edged down to 2.881% from 2.910% on Tuesday.

Among individual stocks, Amazon shares rose 0.1% after reports that the e-commerce giant has acquired Ring, a maker of video doorbells, in a deal valued at more than $US1 billion.

Lowe’s was among the biggest decliners after the home-improvement chain reported weaker-than-expected fourth-quarter results. Shares fell 6.5%.

The Stoxx Europe 600 fell 0.7%. Utility stocks, considered to be bond proxies because of their steady dividends, were among the worst performers.

France’s CAC 40 fell 0.4%, as did Germany’s DAX. The UK’s FTSE 100 dropped 0.7%.

In Italy, which has a general election at the weekend with the prospect of political gridlock in forming a government, the FTSE MB fell 0.5%.