Saturday, 22 September, 2018

Spiking bond yields slam stock market winning streak

E-mini Dow Jones Industrial Average Daily June E-mini Dow Jones Industrial Average
Nellie Chapman | 16 May, 2018, 09:01

US equity markets closed solidly lower on Tuesday with the Dow industrials halting their eight-day advance.

The yield on the 10-year Treasury note spiked to a almost seven-year high Tuesday, causing selling in stocks and in particular the ones most sensitive to interest rates. In other words, you can earn higher income on risk-free short-term money than you can on stocks. That's the highest level since July 2011 for the yield, which is used to set interest rates on mortgages and other kinds of loans. A move in the yield above 2.9 percent earlier this year triggered a correction for USA equities.

The S&P 500 fell 18 points, or 0.7 percent, to 2,711.

Retail sales reported a monthly increase of 0.3%. The Nasdaq Composite closed at 7,351.63 for a loss of -59.69 points or -0.81%. Yet we have to ask: If the Federal Reserve's policy of quantitative easing was good for stocks, shouldn't the reverse policy-aka "quantitative tightening"-be bad for them?" Sectors leading losses for the day included real estate, health care and technology. Bond yields tend to rise when investors expect faster economic growth and higher inflation. Small-company stocks also rose.

The declines Tuesday put the Dow Jones industrial average on track to end an eight-day winning streak.

The proximate trigger for the rise in yields was the release of USA retail sales data, which contained some upward revisions to prior months, and an Empire manufacturing survey that showed the highest prices paid component since 2011. Mortgage rates, which have been rising this year, tend to track the movement in the 10-year Treasury yield.

The S&P 500 index rose 9 points, or 0.3 percent, to 2,736. South Korea's Kospi slipped 0.7 percent to 2,458.54 while Hong Kong's Hang Seng dropped 1.2 percent to 31,152.03. The Nasdaq is up 4 percent.

The prospect of higher interest rates weighed on homebuilders, while the pickup in bond yields sent shares in high-dividend paying stocks lower. Capital One Financial rose 1.6 percent to $94.65.

The Dow Jones industrial average lost 162 points, or 0.6 percent, to 24,739.

The Nasdaq is up 448.24 points, or 6.5 percent.