Flaring economic worries threaten U.S. stocks rally

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Investors show concern over impact of elevated interest rates on growth

Economic concerns are once again showing up on Wall Street’s radar, as worries grow that months of elevated interest rates may be starting to hurt U.S. growth.

Evidence of such a shift in thinking came on Thursday, when data showing weakness in the labor market and manufacturing sector sparked a sharp selloff in U.S. equities, with investors dumping everything from chip stocks to industrials while piling into defensive plays. Richly valued tech stocks tumbled, extending losses in the Nasdaq Composite to nearly 8% from a record closing high reached in July.

Next week brings earnings from industrial bellwether Caterpillar and media and entertainment giant Walt Disney, which will give more insight into the health of the consumer and manufacturing, as well as reports from healthcare heavyweights such as weight-loss drugmaker Eli Lilly . Broader markets also showed signs of unease. The Cboe Volatility index - known as Wall Street’s fear gauge - stands near a three-month high as demand for options protection against a stock market selloff rose. Worries over fresh turmoil in the Middle East also contributed to investor nervousness.

Trading in the options on Utilities Select Sector SPDR Fund also shows a pullback in defensive positioning, highlighting traders’ expectations for strength for the sector. “What you’re seeing now, and you’d probably see it for the next month or two, is some kind of consolidation and sideways price action,” said Bill Strazzullo, chief market strategist at Bell Curve Trading. “The bigger picture bull trend is intact.”

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