Dow drops over 500 points after 10-year Treasury yield touches 3%

U.S. stocks accelerated declines in afternoon trade Tuesday, led by a selloff in industrials, materials and technology shares.

The selling pressure came after the 10-year Treasury yield touched the psychologically important 3% level for the first time in four years, a move that comes as first-quarter earnings season was failing to excite investors, despite some strong results.

While the earnings season remained in full swing, the tone was generally negative, with several bellwether stocks slumping despite posting numbers that were ahead of analyst forecasts.

What are markets doing?

The Dow Jones Industrial Average

DJIA, -2.21%

slumped 541 points, or 2.2%, to 23,907. The S&P 500 index

SPX, -1.72%

fell 44 points, or 1.7%. The Nasdaq Composite Index

COMP, -2.00%

declined by 140 points, or 2%, to 6,989.

Percentage losses were the largest since April 6.

If the Dow closes in negative territory, that will mark its fifth straight negative session, its longest such streak since March 2017. The Nasdaq is threatening its fourth straight down day, its longest streak since February.

What is driving the market?

Trading in the stock market has been heavily influenced by U.S. Treasury yields, and that theme re-emerged as the 10-year Treasury yield

TMUBMUSD10Y, +0.22%

 touched the psychologically important 3% handle on Tuesday and hit a four-year high. Yields and debt prices move in opposite directions. The 10-year yield subsequently pulled back to trade at 2.979%. Yields and debt prices move in opposite directions.

Read: Stock havens take it on the chin as bond yields rise

Earnings were also in focus, with a deluge of high profile companies reporting results before the open. The season has so far been strong, and more than 80% of the S&P 500 companies reporting so far have beaten profit forecasts. While that’s above the 73% that beat in the fourth quarter of 2017, better-than-expected results often haven’t been enough to lift shares thus far this season.

What are strategists saying?

“Crossing 3% on the 10-year is something that will certainly raise concerns, but at this stage of the cycle, higher yields aren’t antithetical to rising stock prices. For the time being I think we’re fine, but we’re certainly keeping an eye on the yield curve, especially if the Fed becomes more aggressive,” said Bruce McCain, chief investment strategist at Key Private Bank. “Ultimately earnings remain the primary driver, along with the fact that the economy is still in pretty good shape.

Hussein Sayed, chief market strategist at FXTM, said that “the 3% by itself is just a psychological level and not a significant threat, but if a break above leads to further selling in Treasury bonds, that’s going to be a serious warning signal for equity bulls. With a current world running on A.I and algorithms, a selloff may look ugly.”

What stocks are in focus?

United Technologies Corp.

UTX, -1.75%

 raised its guidance for the full year after releasing first-quarter earnings that blew past estimates. Shares rose 0.9%.

Coca-Cola Co.

KO, -2.63%

 reported earnings that slightly beat expectations, but the stock fell 1.9%.

Caterpillar Inc.

CAT, -6.65%

reversed early gains and slumped 5.6%. The maker of construction and mining equipment reported first-quarter profit and sales that were well above expectations, but stocks sold off regardless.

3M Co.

MMM, -7.81%

fell 7% as the company said its full-year earnings would be lower than previously expected.

Shares of Alphabet Inc.

GOOGL, -5.19%

GOOG, -4.86%

 sank 4.7% even after the Google parent late Monday reported earnings ahead of analyst estimates.

Read: Google made a lot more profit, and spent a LOT more money—here’s why

Travelers Cos. Inc.

TRV, -4.19%

lost 3.9% after its first-quarter earnings missed forecasts.

Verizon Communications Inc.’s

VZ, +1.20%

stock rose nearly 2% after the company announced better-than-expected results for its March quarter.

Freeport-McMoRan Inc.

FCX, -16.29%

fell 17% after the company reported first-quarter earnings and revenue that missed expectations.

Harley-Davidson Inc.

HOG, +2.26%

 reported revenue and earnings that came in above analyst expectations. Shares were up 2.3%.

PulteGroup Inc.

PHM, +1.75%

 gained 3.4% after reporting strong first-quarter results.

Sanmina Corp.

SANM, +15.88%

 rallied 18% after the electronics maker late Monday reported profit and sales above Wall Street estimates.

What economic data are in focus?

The S&P/Case-Shiller national index rose a seasonally adjusted 0.5% and was up 6.3% compared with a year ago in February, hitting a four-year high.

U.S. consumer confidence index rose to 128.7 in April from 127, while new-home sales were at a seasonally adjusted annual rate of 694,000 in March, the Commerce Department said.

See: MarketWatch’s economic calendar

What are other markets doing?

Asian markets closed mostly higher, with Chinese stocks getting a lift from the government announcing deeper economic and market reforms.

Stocks in Europe closed lower, with the Stoxx Europe 600 index

SXXP, -0.02%

 closing marginally lower at 383.11.

Oil prices fell slightly, with Brent

LCOM8, -1.03%

 briefly breaking above $75 a barrel and trading around its highest level since November 2014.

Gold rose

GCM8, +0.74%

while the ICE U.S. Dollar Index

DXY, -0.20%

 was lower.

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