Stocks start sharply lower as bond yields spike

Marco Green
May 16, 2018

United States stocks fell firmly on Tuesday after a surge in USA government bond yields to their highest level in nearly seven years challenged appetite for equities compared with climbing rates for risk-free bonds.

US stocks dropped sharply on Tuesday after Home Depot reported quarterly sales that fell short of Wall Street's expectations and interest rates breached new highs. That paves the way for higher borrowing costs on mortgages and other loans.

The Dow Jones industrial average lost 0.9%.

The S&P 500 index fell 18 points, or 0.7 percent, to 2,712.

In small-caps, the Russell 2000 closed at 1,600.34 with no change.

The Dow lost 193 points, or 0.8 percent, to 24,706. "A creeping up of these things continues to keep the market nervous".

USA market indexes were lower on Tuesday.

Core April retail sales - which excludes gasoline, automobiles, building materials and food services - rose at a brisker 0.4 percent monthly pace over March, as consumer spending is quickening its pace after a first-quarter slowdown. The VIX Volatility Index was higher at 14.57 with a gain of 1.64 points or 12.68%. The Nasdaq climbed 32 points, or 0.4 percent, to 7,435.

The Federal Reserve has signaled that it will raise rates twice more this year, after having done so initially in March, and most economists foresee the next increase in June.

"The stock market was due for a digestion of the gains that we've seen over the last eight trading sessions", said Quincy Krosby, chief market strategist at Prudential Financial.

Australian stocks bucked the region's downward trend, rising 0.4%. A move in the yield above 2.9 percent earlier this year triggered a correction for USA equities.

In Asia, shares declined on Wednesday in morning session after North Korea pulled out of high-level talks with Seoul and as US Treasury yields rose to the highest level in seven years overnight.

Home Depot Inc shares slipped 1.6 percent after the home improvement retailer missed sales forecasts as the long winter put a damper on demand for spring products. Mortgage rates, which have been rising this year, tend to track the movement in the 10-year Treasury yield. Gold fell $27.90, or 2.1 percent, to $1,290.30 an ounce. In China, the Shanghai Composite Index fell 0.43%. Hong Kong's Hang Seng fell 0.8%.

Other reports by Click Lancashire

Discuss This Article