The New Zealand stock market has dropped in early trading with top stocks feeling the most pressure from anxious investors after a slump on Wall Street overnight.
The S&P/NZX50 was down 2.3 per cent today falling 204 points to 8845.
If the market closes down at the end of today it will mark the ninth consecutive day of lower share prices on the NZX.
Andrew Bascand, managing director of Harbour Asset Management, said the last time the New Zealand market dropped by this much in a day was probably in February when there was a similar period of rising bond yields.
The local decline comes after the Dow Jones Industrial Average fell as much as 600 points in afternoon trading.
Tech stocks including Netflix and Google led the massive falls in the US.
Bond yields have risen in recent days after the US Federal Reserve made it clear it will increase the central bank rate again after strong job growth figures.
Bascand said outside the US data was not so strong indicating global growth was no longer synchronised and stronger US data was not necessarily a good thing for all as it meant higher interest rates.
In New Zealand, Bascand said there had a been a fall in business confidence and while this was not based on a recession there were concerns about higher costs for doing business and numbers crunched by his firm showed profit expectations were now 3.3 per cent lower than three months ago.
Grant Williamson, a client adviser at broker Hamilton Hindin Greene, said another turbulent day on Wall St was always likely to have an impact on the local market.
"It is starting to influence the local market. We are starting to see downward pressure."
Williamson said the month of October had traditionally been a tough time for investors, with major corrections in markets in the past during this month.
"There will be one or two nervous investors out there that will be doing a bit of selling to reduce their exposure."
Some would be keen to take some money off the table after making good gains recently.
Williamson said investors needed to be prepared for these types of corrections and take a long-term view to ride it out.
The NZX50 fell 1.15 per cent last week and this week is down around 1.8 per cent.
"The New Zealand market has been declining from its highs for the last few weeks. It topped out in mid to late September."
Williamson said the trade war between China and America was still playing on people's minds and the recent political turmoil had not been helpful.
Those factors came at a time when there was not much newsflow from companies.
If the market opened weaker it could see bargain hunters begin to emerge as well, Williamson said.
What's going on?
Technology stocks, the biggest winners in the market over the past year, took some of the worst losses. Chipmaker Nvidia dropped 5 per cent.
The S&P 500 is on track for its fifth drop in a row and its biggest decline since April.
The yield on the 10-year Treasury bonds rose to 3.23 per cent, the highest level in seven years. The rise in rates is weighing particularly heavily on areas of the market that had earlier been the biggest winners.
How bad is it?
The S&P 500 index hasn't suffered a five-day losing streak since November 2016, just before the US presidential election.
The tech-heavy Nasdaq composite dropped 3.1 per cent. It's fallen sharply over the past five days.
The Dow Jones Industrial Average gave up 500 points, or 1.9 per cent to 25,926. The Russell 2000 index of smaller-company stocks lost 25 points, or 1.6 per cent, to 1596.
In a note sent out this morning, Kiwibank senior dealer Mike Shirley said the market had taken a few blows.
"Europe and the US received multiple gut punches overnight, the barrage not putting them out for the count, but certainly knocking them to the mat."
Which stocks are taking the big hits?
Tech stocks and companies that sell non-essentials to consumers have been some of the top performers over the past year, nearly doubling the performance of the S&P 500. The latest slump in the market has, however, shaved off some of the big gains.
In technology, Microsoft dropped 3.1 per cent to US$108.76 Wednesday and Nvidia lost 4.7 per cent to US$253.13. In retail, Amazon sank 3.6 per cent to US$1803 and Nike gave up 4.4 per cent to US$76.87.
Boeing shed 3.3 per cent to US$372.58 and 3M fell 2.2 per cent to US$205.77. Insurance companies slumped as Hurricane Michael hit the Florida Panhandle. Berkshire Hathaway fell 3.8 per cent to US$215.20. Among internet companies, Alphabet, Google's parent company, slid 2.3 per cent to US$1118.79.
CNN reported today that investors may want to start shifting into more defensive stocks, which aren't as expensive as the tech players and also pay healthy, stable dividends.
Kiwibank's Shirley elaborated on this further:
"The impact of increasing bond yields is more about comparative performance. Imagine you had only two investment choices, a risky stock or a less risky bond. As the return
generated by bonds goes up, they look more and more desirable."
Shirley further said tech also faces the challenge of the growing animosity between the United States and China - an issue, which is driving uncertainty in this space.
What's causing the slide?
In a single word: yields.
The biggest driver for the market over the past week has been interest rates, which began spurting higher following several encouraging reports on the economy. Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.
The 10-year US Treasury yield rose to 3.23 per cent from 3.20 per cent late Tuesday after earlier touching 3.24 per cent. It was at just 3.05 per cent early last week.
Gina Martin Adams, the chief equity strategist for Bloomberg Intelligence, said investors fear that company profit margins will be squeezed by rising costs, including the price of oil. Paint and coatings maker PPG gave a weak third-quarter forecast Monday, while earlier, Pepsi and Conagra's quarterly reports reflected increased expenses.
"Both companies highlighted rising costs, not only input costs but increasing operating expenses [and] marketing expenses," she said.
Adams said those worries are affecting technology and consumer-focused companies as well even though companies like Alphabet, Amazon and Facebook have long had very high profit margins. That's helped make technology stocks more volatile in the past few months.
"As stocks go up, tech goes up more than the stock market. As stocks go down, tech goes down more than the stock market."
Is the dip hitting other markets?
Yesterday, New Zealand shares fell for an eighth day as investors remain uncertain about the global economic outlook.
The S&P/NZX 50 index declined 19.16 points, or 0.2 per cent, to 9050.82. Within the index, 26 stocks fell, 20 gained and four were unchanged.
There were also losses elsewhere.
South Korea's Kospi dropped 1.1 per cent, the CAC 40 in France dropped 2.1 per cent, Germany's DAX lost 2.2 per cent and the FTSE 100 in London fell 1.3 per cent.
Stocks from emerging markets were also hard hit. Investors see many of these countries as being vulnerable to higher US interest rates, which can pull away investment dollars. Brazil's Bovespa lost 2.3 per cent and the Merval in Argentina sank 2.8 per cent.
There were, however, slight lifts for Japan's Nikkei, which added 0.2 per cent, and Hong Kong's Hang Seng, which gained 0.2 per cent.
- Additional reporting Associated Press