Site icon Money & Markets, LLC

Stocks Sink Again as Job Gains Send Bond Yields Even Higher

interest rate market collapse Fed stock market Cycle 9 Alert

U.S. stocks are falling again Friday as investors continue to worry about rising bond yields and interest rates. The Labor Department said the economy continues to add jobs at a strong pace, which makes it more likely rates will keep rising.

The yield on the 10-year Treasury note has soared over the last three days and hasn’t been this high since mid-2011. Bond prices are falling as investors sell them, but Wall Street is also concerned that spiking interest rates could eventually slow the economy.

KEEPING SCORE: The S&P 500 index lost 16 points, or 0.6 percent, to 2,886 at closing time. The Dow Jones Industrial Average inched slid 180 points, or 0.7 percent, to 26,447.

Technology and internet companies and smaller, more U.S.-focused companies continued to suffer steep losses. The Nasdaq composite skidded 91 points, or 1.2 percent, to 7,788 as technology and internet companies continued to struggle. The Russell 2000 index lost 11 points, or 0.7 percent, to 1,634.

The Nasdaq has dropped 3 percent this week and the Russell has tumbled 3.6 percent. Those are their biggest weekly losses in more than six months. The Russell is on pace for its lowest close since late May.

IT’S A LIVING: The Department of Labor said employers added significantly more jobs in July and August that it previously thought, which made up for a slightly disappointing gain in September. The September total was probably reduced by the damage Hurricane Florence did to the Carolinas.

Friday’s data suggest the economy should keep growing at a strong clip, which means corporate profits should continue to grow. That’s a good sign for stocks.

BONDS: Bond prices kept falling. The yield on the 10-year Treasury note rose to 3.23 percent from 3.19 percent. The yield on the 10-year Treasury is an important benchmark for longer-term interest rates, and hasn’t been this high since May 2011.

“It’s so unusual to see these kinds of dramatic moves in the U.S. Treasury market without there being some kind of Big Bang event,” said Katie Nixon, chief investment officer for Northern Trust Wealth Management. “We haven’t seen anything like it since the (2016 presidential) election.”

THE QUOTE: Nixon said the decline in stock and bond prices started with comments by Federal Reserve Chairman Jerome Powell on Wednesday.

In a moderated discussion, Powell expressed confidence in the economy and said rising interest rates are a “long way” from holding back growth. Nixon said that means the Fed is intent on raising rates further, and investors aren’t sure when it intends to stop.

“The Fed is clearly no longer in the business of being accommodative and now the burden of proof is on the data to prove them wrong,” she said.

SWITCHEROO: The sell-off in technology and internet companies continued. Nvidia lost 2.8 percent to $271.50 and Apple slipped 1.4 percent to $224.65 while Netflix slumped 2.9 percent to $353.10. Among retailers, Amazon gave up 0.6 percent to $1,897.

Those sectors have been the biggest gainers on the S&P this year, but have taken sharp losses this week. Banks and industrial and energy companies, which have struggled in 2018, have changed place and performed better than the broader market.

Several major banks will report their third-quarter results late next week as the next round of company earnings begins.

UNFOLLOWED: Tesla stock fell Friday. CEO Elon Musk taunted the Securities and Exchange Commission just a few days after he agreed to settle an SEC lawsuit triggered by a tweet he sent in August. CNBC reported that financier David Einhorn criticized Tesla, comparing it to Lehman Brothers, which went bankrupt during the financial crisis.

As part of that settlement, Musk agreed to step down as chairman and submit to oversight when he’s communicating company news. His criticisms of the SEC don’t appear to be company news, but they may have worried investors who hoped his feed would be a little more boring from now on.

Musk and Tesla are also paying $20 million each to end the lawsuit. The stock lost 6.9 percent to $262.22 Friday.

COSTLY: Wholesale club operator Costco gave up 5.8 percent to $218.23 after it said it discovered technology problems related to its financial reporting processes. Costco said it is investigating, but hasn’t found any problems with its past earnings reports so far.

OVERSEAS: European stocks fell for the second day in a row. Germany’s DAX lost 1.1 percent and the CAC 40 in France dropped 1 percent. Britain’s FTSE 100 fell 1.3 percent. Bond prices in all three countries fell again sending yields higher.

Japan’s benchmark Nikkei 225 fell 0.8 percent and the Kospi in South Korea dropped 0.3 percent. Hong Kong’s Hang Seng fell 0.2 percent.

ENERGY: Benchmark U.S. crude was little changed at $74.34 a barrel in New York and Brent crude, the standard for international oil futures, fell 0.5 percent to $84.16 a barrel in London.

Wholesale gasoline slipped 0.7 percent to $2.09 a gallon. Heating oil dipped 0.3 percent to $2.39 a gallon. Natural gas fell 0.7 percent to $3.14 per 1,000 cubic feet.

METALS: Gold rose 0.3 percent to $1,205.60 an ounce. Silver added 0.4 percent to $14.65 an ounce. Copper fell 0.5 percent to $2.76 a pound.

CURRENCIES: The dollar slipped to 113.73 yen from 113.86 yen. The euro rose to $1.1525 from $1.1515.

© The Associated Press. All rights reserved.

Exit mobile version