Wall Street slides as high bond yields fan cost worries

NEW YORK: US stocks slid on Tuesday as 10-year Treasury yields hit the highly anticipated 3 percent mark for the first time in four years, stoking concerns over higher borrowing rates for companies already facing rising costs, and as quarterly results failed to deliver positive outlooks.The S&P 500 and the Dow fell the most in two-and-a-half weeks, while the Dow Jones Industrial Average was down for the fifth day in a row. The S&P 500 is now down 1.5 percent year-to-date.
The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply, and rising Federal Reserve borrowing costs.
“It makes borrowing costs more expensive for corporations. This market rally for the last nine years has been driven by low interest rates, accommodating monetary policy and excess liquidity,” said Oliver Pursche, chief market strategist for Bruderman Asset Management in New York.Higher bond yields could also prompt portfolio managers to weigh moving money into more attractive fixed-income securities at the expense of equities. The stock market had already been spooked by a climb in bond yields earlier in the year, sliding sharply in February..Technology and industrial stocks weighed on the major indexes on Tuesday, with Alphabet Inc, Facebook Inc, 3M Co, and Caterpillar Inc all falling more than 3.5 percent.Alphabet shares fell 0.77 percent, erasing the stock’s year-to-date gains as rising expenses and shrinking margins overshadowed the company’s better-than-expected profit.Industrial bellwether Caterpillar tumbled 2 percent on fears of increasing steel prices, despite the company’s beating earnings estimates due to strong global demand.Diversified industrial manufacturer 3M was the biggest drag on the Dow Jones Industrial Average. Shares fell 2 percent after the company posted in-line profits as lower taxes offset a miss in operating profits and the company lowered its 2018 earnings forecast.“We’re seeing some of the earnings numbers have come out, and after further review, (investors) realized where all this revenue was coming from,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “They didn’t see it as recurring or indicative of the core business.
“I think what investors had hoped the benefit from taxes would get redeployed back into the company. That’s not happening,” Nolte said.
Apple Inc shares lost 2 percent as worries over softening demand for high-end smartphones were underscored as Corning Inc reported a drop in screen glass sales for the first time in at least four quarters.
Other technology stocks in the FAANG group, Facebook, Amazon.com Inc, and Netflix Inc, also weighed on the Nasdaq.“They’re kind of pulling each other down,” said Nolte. “Investors are saying, ‘You know, the group has had a tremendous run over the last two to three years, maybe we should take some money off the table here.’”