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Stocks routed — What you need to know in markets on Thursday

Myles Udland
Markets Reporter

On Wednesday, stocks got crushed.

All three major U.S. indexes suffered sharp losses with the Dow falling more than 800 points for the third time this year while the tech-heavy Nasdaq dropped over 4% as rate fears and momentum selling gripped markets throughout the trading day.

On Wednesday, the Dow dropped 831 points, or 3.15%, its third-largest drop ever on a points basis though much more modest on a percentage basis, while the S&P 500 dropped 95 points, or 3.3%, and the Nasdaq fell 316 points, or 4.1%.

Just because something’s oversold, that doesn’t mean it can’t keep going down,” said analysts at Bespoke Investment Group in a note to clients Wednesday afternoon.

“That’s the key takeaway we have for you tonight as we review today’s equity market selloff, including index technicals, the collapse of growth versus value, a huge decline in the Nasdaq 100, and the role interest rate term structure has played in equity selling.”

Final numbers for the Dow Jones industrial average are displayed after the close of trading on the floor of the New York Stock Exchange (NYSE) in Manhattan in New York, U.S., October 10, 2018. REUTERS/Brendan McDermid

And so for the second time this year, investors are looking at sharp losses with several potential trigger points for the market pressure but no obvious sense of the what driving the why of a market dropping quickly. All we know is stocks went down a bunch on Wednesday.

“The stock market is doing what markets do best this afternoon: panic selling without a fundamental reason,” said Chris Rupkey, chief financial economist at MUFG in an email late Wednesday. “One thing is for certain, stocks [were] down hard [on Wednesday] as the earnings outlook is not as positive as it was.”

Earlier this week, an earnings pre-announcement from PPG (PPG) hit all the major macro worries investors have on their minds this earnings season — inflation, commodity prices, China, trade conflicts — pressuring shares of materials stocks.

Results from Fastenal (FAST) — which distributes industrial products — out early Wednesday beat expectations but on the company’s earnings conference call, China was referenced more than a dozen times with Barron’s noting that “much of Fastenal’s earnings call was spend discussing higher costs.”

And so while earnings results might be solid, the outlook for higher costs, more inflation in the economy, and the peak of this current earnings cycle seems likely to pre-occupy investors who are already being sensitive when it comes to punishing stocks after bad corporate news.

President Donald Trump also noted Wednesday’s sell-off and for a second straight day discussed his displeasure with the Fed’s recent decision to raise interest rates and its future plans to keep hiking.

“The Fed is making a mistake,” Trump told reporters Wednesday, according to Reuters’ Jeff Mason. “They’re so tight. I think the Fed has gone crazy. So you could say that, well that’s a lot of safety actually, and it is a lot of safety, and it gives you a lot of margin, but I think the Fed has gone crazy.”

And given that Trump has so tightly and happily tied the success of the stock market during his time in office to the overall success of the administration’s economic plans, it will be interesting to see how far Trump goes in blaming the Fed for any extended periods of market turmoil or negative developments in the economy.

President Donald Trump talks with reporters after arriving at Erie International Airport for a campaign rally at Erie Insurance Arena, Wednesday, Oct. 10, 2018, in Erie, Pa. (AP Photo/Evan Vucci)

On Thursday, investors will keep their gaze focused on rates and inflation when the most important economic data of the week is released — the September report on consumer prices.

The September CPI data is set for release at 8:30 a.m. ET, with economists expecting this report o show “core” inflation rose 2.3% over last year in September. The Fed, you’ll recall, is targeting 2% inflation. Markets will be keenly watching this report with rates and other inflation pressures cited the most commonly-cited proximate causes of the recent stock market sell-off. Investors will also get the weekly report on initial jobless claims on Thursday morning.

And on the earnings side, reports from Delta (DAL) and Walgreen’s (WBA) will be highlights, with markets tracking Delta’s results closely after airline shares sold off hard earlier this week following a warning on rising fuel costs from American Airlines (AAL).

But on Thursday, the big market story will be, well, the market.

Stocks were drubbed Wednesday, rates are near multi-year highs, and the President of the United States is blaming the Federal Reserve for these stresses. May we all live in interesting times.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland