US Stocks Swing Wildly on Heels of Wednesday Rout


U.S. stocks struggled to find their footing Thursday, as investors refocused on signs of slowing global growth, rising bond yields and increasing trade tensions.

The Dow Jones Industrial Average swung more than 450 points from its high to its low in the first half of the trading session, following a steep tumble in overseas markets. The sectors that led Wednesday’s rout, like technology and communications, recouped some of their losses, while energy stocks tumbled along with oil prices.

The Dow industrials fell 90 points, or 0.4%, to 25509, after earlier rising as much as 85 points and falling as much as 373 points. The S&P 500 tumbled 0.4%, and the technology-heavy Nasdaq Composite climbed 0.3%.

Tech stocks in the S&P 500 gained 0.5%, while the communications sector, which is home to

Facebook

and Google parent

Alphabet
,

added 0.4%.

Facebook and Alphabet climbed 0.9% and 0.7%, respectively, while

Amazon.com

continued tumbling, falling 2%. All three stocks declined more than 4% in the previous session.

Energy stocks, meanwhile, were the biggest losers in the index, sliding 1.5% as U.S. crude oil fell 2.2% to $71.54 a barrel.

While the recent selloff adds to the pain that many emerging markets have felt in recent months, U.S. stocks had largely been isolated from that turmoil. That changed Wednesday, with the Dow industrials falling 832 points, or 3.2%, and the S&P 500 dropping 3.3%.

President Trump called the Federal Reserve’s recent interest-rate increases “a mistake,” suggesting that the central bank was to blame after Wednesday’s stock-market plunge. Photo: AP Images

The narrative in focus in the market over the past week has been on growing concerns that interest rates will keep rising in response to strong U.S. economic growth and unbridled inflation, and in turn higher financing costs will dent corporate profitability.

Jason Draho, the head of asset allocation at UBS Global Wealth Management, said those fears have made some investors pause and ponder how much longer the U.S. expansion can continue after a nine-year bull-market run in stocks.

“U.S. growth is still very good,” Mr. Draho said. “But we’re waking up to the reality that this late in the economic cycle, you get higher rates, you get more volatility and more bumps in the road.”

Meanwhile, more catalysts for volatility could be on the horizon. Some of the largest U.S. banks, including

JPMorgan Chase
,

Citigroup

and

Wells Fargo
,

are set to release their third-quarter results Friday.

Companies in the S&P 500 are expected to report a robust 19% jump in profits for the third quarter, according to FactSet, which investors hope will offer a pillar of support for the stock market.

Patrick Kaser, managing director and portfolio manager at Brandywine Global, said he doesn’t expect the banks to say higher rates are much of a stress on the U.S. economy, which could provide some reassurance for investors.

“All the leading indications that would point to a recession in the next year just aren’t there,” Mr. Kaser said. “The banks have a great window into customer behavior, so there could be some reassurance there.”

Stocks got a boost earlier in the session on signs inflationary pressures remain in check. U.S. consumer prices climbed less than expected in September, lowering the chance the Federal Reserve will be forced to raise interest rates faster than expected.

“Markets are very much focused on the Fed getting it…exactly right with their policy,” said Mark Haefele, chief investment officer for UBS Wealth Management.

After the release of the data, investors scaled back their bets that the Fed will take an aggressive approach to raising interest rates in the coming year.

Fed funds futures, which investors use to bet on the path of central bank interest-rate policy, showed that the odds that policy makers will raise rates three times by June 2019 declined to 33% from 41% Wednesday. The odds of an increase in December slipped to 78% from 83% Wednesday.

The rise in bond yields paused Thursday as investors piled into havens to shelter from the turbulence in equity markets. The yield on the 10-year Treasury note declined to 3.171%, according to Tradeweb, from 3.221% on Wednesday. Yields fall as prices rise.

Gold prices rose over 2.4% to $1222.60 an ounce.

A pedestrian looks at a stock indicator board showing Dow Jones, Nasdaq, Hang Seng and SSE composite index numbers, in Tokyo on Thursday.

A pedestrian looks at a stock indicator board showing Dow Jones, Nasdaq, Hang Seng and SSE composite index numbers, in Tokyo on Thursday.


Photo:

behrouz mehri/Agence France-Presse/Getty Images

Bond yields across much of Europe also fell, except in Italy, where concerns over the country’s antiestablishment government’s budget plans have sparked a selloff in recent weeks.

One notable area of calm on Thursday: emerging-market currencies. The Turkish lira was up 1.4% against the dollar, the South African rand rose 1% and the Mexican peso gained 0.7%. That comes on the back of hefty losses this year for emerging markets, which have suffered amid higher U.S. interest rates and global trade tensions.

The WSJ Dollar Index, which measures the greenback against a basket of 16 others, dropped 0.4%.

But investors point to other risks ahead, most notably elevated trade tensions between the U.S. and China. Meanwhile, concerns are building that the falling yuan and a slowdown in the Chinese economy could spill over into global markets.

“Cracks are starting to show,” said Charles Hepworth, an investment director at GAM Holding. “Generalized de-risking will certainly be the order of the day going into the next quarter.”

Overseas, the Stoxx Europe 600 slumped 2% following a turbulent session in the Asia-Pacific region. China’s Shanghai Composite Index slid 5.2%, while the tech-heavy Shenzhen market fell 6.5%, taking losses to about 32% so far this year and making it one of the worst performers among the world’s major markets.

Write to Christopher Whittall at christopher.whittall@wsj.com and Steven Russolillo at steven.russolillo@wsj.com



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