Wednesday April 25th

25-04-2018

Dow drops more than 100 points, adds to Tuesday's losses, as rates keep climbing

Stocks fell on Wednesday, adding to losses from the previous session, as investors fretted over interest rates reaching multiyear highs. Investors also worried that corporations may not be able to maintain their pace of earnings growth. The Dow Jones industrial average dropped 115 points after a higher open. The S&P 500 and Nasdaq composite both declined 0.5 percent. The benchmark 10-year Treasury yield traded at 3.015 percent after breaking above 3 percent for the first time since 2014 on Tuesday. The move higher in rates helped push stocks lower on Tuesday, with the Dow dropping more than 400 points. Investors are worried rising borrowing costs may slow the economy and hurt companies' ability to buy back their own stock. "For 10 years, rates were kept artificially low to encourage risk taking," said Jack Ablin, founding partner of Cresset Wealth. "Once we get to more normal levels, that's going to become a challenge for equities as an asset class." With the 10-year yield hitting the 3 percent mark, financial markets around the globe have fallen, with European and Asian indexes trading in the red Wednesday. The move lower in equities is taking place despite a string of strong corporate earnings. Dow member Boeing reported earnings and revenue that easily beat expectations. Twitter posted a better-than-expected profit and revenue for the first quarter. NBCUniversal-parent Comcast also posted stronger-than-forecast earnings and revenue. On Tuesday, bellwether Caterpillar posted earnings and revenue that beat expectations, but the shares fell after the company's CFO said their first-quarter results may have been the "high watermark" for the year. Those remarks helped push the market lower in the previous session. Jeremy Klein, chief market strategist at FBN Securities, said he is not worried about corporate earnings, however. "Fears of 'peak earnings' are laughable considering that the average constituent in the S&P 500 has enjoyed year-over-year bottom line growth in excess of 20%," Klein wrote in a note. "Revenues have increased by nearly 10%. Solid economic data, which includes strong consumer and business confidence, makes an imminent recession a remote possibility." Markets in Asia traded lower on Wednesday, following an overnight drop in U.S. stocks as investors worried about rising interest rates and the outlook of the economy. Japan's Nikkei 225 fell 62.80 points, or 0.28 percent, to 22,215.32 while the Topix index declined 2.02 points, or 0.11 percent, to 1,767.73. In South Korea, the Kospi was down 15.33 points, or 0.62 percent, at 2,448.81. Hong Kong's Hang Seng index fell 1.15 percent as of 3:03 p.m. HK/SIN. Chinese mainland markets were mixed with the Shanghai composite declining 10.92 points, or 0.35 percent, to 3,117.99 and the Shenzhen composite rose 4.85 points, or 0.26 percent, to 1,809.25. Oil prices stabilized on Wednesday as rising U.S. fuel inventories and production weighed on an otherwise bullish market. U.S. crude inventories rose by 1.1 million barrels in the week to April 20 to 429.1 million, according to a report by the American Petroleum Institute on Tuesday. Official weekly U.S. fuel inventory and crude production data will be published on Wednesday by the Energy Information Administration (EIA). "Should a larger than expected build occur in U.S. inventories, we can expect a swing in prices as markets have been shown to be extremely sensitive to weekly U.S. petroleum data," Singapore-based Phillip Futures said in a note. Brent crude oil futures were down 9 cents at $73.77 a barrel by 9:17 a.m. ET (1317 GMT), some 2 percent below the November 2014 high of $75.47 reached on Tuesday. U.S. West Texas Intermediate (WTI) futures were up 7 cents at $67.77 a barrel, also off the late-2014 highs of $69.56 a barrel marked earlier in April. Gold fell on Wednesday as the dollar and U.S. Treasury yields jumped on robust U.S. data and signs of an easing in the U.S.-China trade conflict. Spot gold was down 0.78 percent at $1,319.86 per ounce, as of 8:34 a.m. ET, erasing the gains made in the previous session when it broke a three-session losing streak. U.S. gold futures for June delivery dropped 0.86 percent to $1,321.50 per ounce.