Wall Street slides as high bond yields fan borrowing cost fears

WALL STREET dropped sharply on Tuesday as warnings by bellwether companies of higher costs reverberated as the benchmark US 10-year Treasury yield pierced the 3% level for the first time in four years. Industrial heavyweight Caterpillar tumbled 6.20% after management said first-quarter earnings would be the “high water mark” for the year and warned of increasing steel prices, although the company beat earnings estimates due to strong global demand.

NEW YORK — Wall Street dropped sharply on Tuesday as warnings by bellwether companies of higher costs reverberated as the benchmark US 10-year Treasury yield pierced the 3% level for the first time in four years.

Caterpillar, an industrial heavyweight, tumbled 6.20% after management said firstquarter earnings would be the “high water mark” for the year and warned of increasing steel prices, although the company beat earnings estimates due to strong global demand.

The S& P 500 and the Dow fell the most in two- and- a- half weeks, and the Dow Jones Industrial Average was down for a fifth day in a row. The S&P 500 is down 1.5% year-to-date.

Other companies, including Lockheed and 3M, also gave disappointing updates, adding to the sting of rising Treasury yields.

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.

Diversified industrial manufacturer 3M Co. was the biggest drag on the Dow Jones Industrial Average. Shares fell 6.83% 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,” he added.

“I think what investors had hoped the benefit from taxes would get redeployed back into the company. That’s not happening.”

The Dow Jones Industrial Average fell 424.56 points or 1.74% to 24,024.13; the S& P 500 lost 35.73 points or 1.34% to 2,634.56; and the Nasdaq Composite dropped 121.25 points or 1.70% to 7,007.35.

Technology stocks also weighed on the major indexes. Facebook, Inc. fell 3.7%. Alphabet shares fell 4.77%, erasing the stock’s year- to- date gains as rising expenses and shrinking margins overshadowed the company’s better- than- expected quarterly profit. Apple, Inc. shares lost 1.39% as worries over softening demand for highend smartphones were underscored as Corning, Inc. reported a drop in screen glass sales for the first time in at least four quarters.

Declining issues outnumbered advancing ones on the NYSE by 1.94 to 1; on Nasdaq, a 1.71- to-1 ratio favored decliners.

The S& P 500 posted 13 new 52-week highs and 21 new lows; the Nasdaq Composite recorded 61 new highs and 90 new lows. —