STREET $TRESS
Wall Street’s on the run from its most feared devil – global inflation – causing a new rout in stocks and a desperate shift in hundreds of billions in cash.
Investors dumped stocks in hectic trading, sinking the Dow Jones industrial average by nearly 200 points. It came amid a chain of events on both sides of the Atlantic that some market watchers say will worsen before getting better.
Although stocks here have been basking in record highs due to huge merger deals, the Nasdaq and the S&P 500 got clobbered with their biggest three-day drops since February’s global stock panic.
The Dow lost 198.94, or 1.48 percent, to close at 13,266.73, with all stocks in the blue chip index posting losses. The Standard & Poor’s 500 index fell 26.66, or 1.76 percent, to 1,490.72, and the Nasdaq Composite index fell 45.80, or 1.77 percent, to 2,541.38.
“This is a dark and gloomy day on Wall Street,” said the usually upbeat Hugh F. Johnson, CEO of Johnson Illington Advisers.
Traders scrambled to shift money from stocks into the higher yields of bonds, which are making a come-from-behind surprise to rival returns on already overpriced stocks.
What stunned many market watchers yesterday was the surprising climb in yields of the benchmark 10-year Treasury note, which yesterday hit its highest level in two years. In just three weeks, the note’s yield has soared to 5.12 percent from 4.63 percent.
“In the world of bonds, that’s a very big jump. The big surprise is seeing how fast and sharply it’s risen,” said Johnson.
Economists say numerous red flags are pointing to increasing global inflation, much of it blamed on high oil prices and excessive borrowing by the U.S. government. Crude jumped here to a nine-month high, rising 97 cents, or 1.5 percent, to $66.93 a barrel.
Most investors fear the Federal Reserve could react to inflation by hiking its short-term rates and thus apply breaks to the already slowing economy.
