By: CORRIE DRIEBUSCH
U.S. stocks tumbled on Tuesday as the dollar rose to a nearly 12-year high against the euro and bond yields in Europe hit record lows.
Traders described the move down as orderly, with declines driven by a lack of investors stepping up to buy shares rather than hedge funds or other institutional investors rushing to the exits. The move seemed to be driven by investors who make buy and sell decisions based on broad economic trends rather than the outlooks for specific companies.
The Dow Jones Industrial Average dropped 332.78 points, or 1.85%, to 17662.94 and the S&P 500 index fell 35.27 points, or 1.7%, to 2044.16. The moves marked the biggest one-day percentage declines for the two indexes since early January.
The Nasdaq Composite lost 82.64 points, or 1.7%, to 4859.79.
The Russell 2000, the widely-followed index of small-company stocks, fell 15.05 points, or 1.2%, to 1208.54. Small-cap stocks have outperformed their large-cap counterparts in recent months, driven by the belief these companies will benefit from a growing domestic economy and that they have less international exposure and therefore will be hurt less by a stronger dollar. For the past three months, the Russell 2000 is up 4%, compared with the S&P 500’s 0.9% rise during that period.
While trading volumes were higher than those on Monday, they weren’t extreme, traders said, adding that there was no one reason for the downward move. Instead they cited a retreat from record highs hit last week as well as some increased jitters about how soon the Federal Reserve may raise interest rates following positive jobs data released Friday.
All of the S&P 500’s 10 sectors posted declines. With Tuesday’s drop, the Dow industrials and the S&P 500 are in the red for 2015, a week after both indexes closed at record highs and the Nasdaq Composite ended above 5000 for the first time in nearly 15 years.
On Friday, following the robust jobs report, bond yields jumped and investors sold shares in utility companies. The sector had been very popular in the past few years due to its steady dividend payments. As yields rise, investors tend to move money from utilities companies and other income-yielding stocks such as real-estate investment trusts to bonds.
But in the past month, as expectations grow for a Fed rate increase as early as this summer, the yield on the 10-year note has risen roughly 7.4%, and utilities companies are off about 8.5%. Yields fall as prices rise.
“There’s all sorts of volatility surrounding the magical date when the Fed will raise interest rates,” said Bernie Williams, chief investment officer of USAA Investment Solutions, which manages about $23 billion. “You’re getting the Fed rate-raise tantrums.”
But on Tuesday, U.S. Treasury yields slipped, with the yield on the 10-year note falling to 2.130% from 2.195% on Monday. The utilities sector was the best performing sector in the S&P 500, with those companies’ shares slipping only 0.2%. Mr. Williams said the recent sharp move down in the sector highlights “the danger of chasing after these yield plays when we may soon see a rate increase.” He said he is underweight on utilities.
In other markets, the euro slumped about 0.9% against the dollar to $1.0699 and bond yields in the eurozone hit fresh lows, a day after the European Central Bank began its bond-buying program as it aims to kick-start the eurozone economy. Germany’s 10-year yield touched 0.19%, its lowest on record, as demand from the central bank continued to drive up prices. European stocks fell, with France’s CAC 40 down 1.1% and Germany’s DAX down 0.7%.
While the ECB is aggressively easing its monetary policy, the Federal Reserve is widely expected to begin tightening this year, possibly raising interest rates as early as June. Diverging interest rates could continue to spark moves in currency markets. That volatility is likely to spill over into the U.S. stock market in the short run, analysts say. In the long run, low interest rates across the globe should continue to boost demand for risky assets, such as stocks.
“There’s a tremendous amount of liquidity in the market,” said Michael Arone, State Street Global Advisors’ chief investment strategist.
“Even in the U.S., the Fed is staying largely accommodative. In that environment, you’re likely to see stocks rise,” he added.
Stocks also fell in Asia, with Hong Kong stocks notching their longest losing streak in six months.
In commodity markets, gold futures slipped 0.5% to $1160.10 an ounce. Crude-oil futures fell 3.4% to $48.29 a barrel.
Barnes & Noble fell 10% as its fiscal third-quarter earnings fell short of expectations amid a sharply higher income tax expense.
American Airlines Group Inc. shares fell 2.5% as the airline said passenger traffic declined in February. Rival airline United Continental Holdings Inc. ’s shares also declined, down 2.3%, as its capacity fell slightly in February from the year-ago period while passenger traffic was unchanged.
Shares of Urban Outfitters Inc. rose 12% after the retailer reported quarterly earnings that topped analysts’ forecasts.
END
—Saumya Vaishampayan and Tommy Stubbington contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
U.S. stocks tumbled on Tuesday as the dollar rose to a nearly 12-year high against the euro and bond yields in Europe hit record lows.
Traders described the move down as orderly, with declines driven by a lack of investors stepping up to buy shares rather than hedge funds or other institutional investors rushing to the exits. The move seemed to be driven by investors who make buy and sell decisions based on broad economic trends rather than the outlooks for specific companies.
The Dow Jones Industrial Average dropped 332.78 points, or 1.85%, to 17662.94 and the S&P 500 index fell 35.27 points, or 1.7%, to 2044.16. The moves marked the biggest one-day percentage declines for the two indexes since early January.
The Nasdaq Composite lost 82.64 points, or 1.7%, to 4859.79.
The Russell 2000, the widely-followed index of small-company stocks, fell 15.05 points, or 1.2%, to 1208.54. Small-cap stocks have outperformed their large-cap counterparts in recent months, driven by the belief these companies will benefit from a growing domestic economy and that they have less international exposure and therefore will be hurt less by a stronger dollar. For the past three months, the Russell 2000 is up 4%, compared with the S&P 500’s 0.9% rise during that period.
While trading volumes were higher than those on Monday, they weren’t extreme, traders said, adding that there was no one reason for the downward move. Instead they cited a retreat from record highs hit last week as well as some increased jitters about how soon the Federal Reserve may raise interest rates following positive jobs data released Friday.
All of the S&P 500’s 10 sectors posted declines. With Tuesday’s drop, the Dow industrials and the S&P 500 are in the red for 2015, a week after both indexes closed at record highs and the Nasdaq Composite ended above 5000 for the first time in nearly 15 years.
On Friday, following the robust jobs report, bond yields jumped and investors sold shares in utility companies. The sector had been very popular in the past few years due to its steady dividend payments. As yields rise, investors tend to move money from utilities companies and other income-yielding stocks such as real-estate investment trusts to bonds.
But in the past month, as expectations grow for a Fed rate increase as early as this summer, the yield on the 10-year note has risen roughly 7.4%, and utilities companies are off about 8.5%. Yields fall as prices rise.
“There’s all sorts of volatility surrounding the magical date when the Fed will raise interest rates,” said Bernie Williams, chief investment officer of USAA Investment Solutions, which manages about $23 billion. “You’re getting the Fed rate-raise tantrums.”
But on Tuesday, U.S. Treasury yields slipped, with the yield on the 10-year note falling to 2.130% from 2.195% on Monday. The utilities sector was the best performing sector in the S&P 500, with those companies’ shares slipping only 0.2%. Mr. Williams said the recent sharp move down in the sector highlights “the danger of chasing after these yield plays when we may soon see a rate increase.” He said he is underweight on utilities.
In other markets, the euro slumped about 0.9% against the dollar to $1.0699 and bond yields in the eurozone hit fresh lows, a day after the European Central Bank began its bond-buying program as it aims to kick-start the eurozone economy. Germany’s 10-year yield touched 0.19%, its lowest on record, as demand from the central bank continued to drive up prices. European stocks fell, with France’s CAC 40 down 1.1% and Germany’s DAX down 0.7%.
While the ECB is aggressively easing its monetary policy, the Federal Reserve is widely expected to begin tightening this year, possibly raising interest rates as early as June. Diverging interest rates could continue to spark moves in currency markets. That volatility is likely to spill over into the U.S. stock market in the short run, analysts say. In the long run, low interest rates across the globe should continue to boost demand for risky assets, such as stocks.
“There’s a tremendous amount of liquidity in the market,” said Michael Arone, State Street Global Advisors’ chief investment strategist.
“Even in the U.S., the Fed is staying largely accommodative. In that environment, you’re likely to see stocks rise,” he added.
Stocks also fell in Asia, with Hong Kong stocks notching their longest losing streak in six months.
In commodity markets, gold futures slipped 0.5% to $1160.10 an ounce. Crude-oil futures fell 3.4% to $48.29 a barrel.
Barnes & Noble fell 10% as its fiscal third-quarter earnings fell short of expectations amid a sharply higher income tax expense.
American Airlines Group Inc. shares fell 2.5% as the airline said passenger traffic declined in February. Rival airline United Continental Holdings Inc. ’s shares also declined, down 2.3%, as its capacity fell slightly in February from the year-ago period while passenger traffic was unchanged.
Shares of Urban Outfitters Inc. rose 12% after the retailer reported quarterly earnings that topped analysts’ forecasts.
END
—Saumya Vaishampayan and Tommy Stubbington contributed to this article.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
Comments
Post a Comment