Stocks down; bond yields up

U.S. stocks abruptly fell after machinery maker Caterpillar made a disappointing projection.

After a strong start, U.S. stocks abruptly sold off Tuesday after machinery maker Caterpillar said it doesn’t expect to top its first-quarter profit for the rest of the year. The Dow Jones industrial average plunged as much as 619 points, before recovering somewhat, as investors feared that rising oil prices and other costs would slow growth in company profits.

Stocks climbed in early trading as companies such as Caterpillar, appliance maker Whirlpool and Fifth Third Bancorp posted strong quarterly results. Then Caterpillar executives said they don’t expect to report a larger per-share profit for the rest of 2018. Other industrial, technology and basic materials companies also took sharp losses.

The Standard & Poor’s 500 index sank 35.73 points, or 1.3%, to 2,634.56. The Dow Jones industrial average finished with a loss of 424.56 points, or 1.7%, to 24,024.13. The Nasdaq composite dropped 121.25 points, or 1.7%, to 7,007.35.

Smaller-company stocks held up better than the rest of the market. The Russell 2000 index declined 8.84 points, or 0.6%, to 1,553.28.

Caterpillar’s products are used in a wide variety of industries, including construction, power generation, mining and oil and gas drilling. 3M, which makes Post-it notes and industrial coatings and ceramics, said the rising price of oil and other materials is affecting its business.

The companies’ statements came as interest rates kept rising, which makes it more expensive for companies to borrow money. The yield on the 10-year Treasury note rose to 3% for the first time in more than four years.

Stocks leaped at the end of 2017 and the start of 2018 as investors bet the corporate tax overhaul would lead to bigger profits for U.S. companies and greater economic growth.

Gina Martin Adams, chief equity strategist for Bloomberg Intelligence, said that hasn’t happened yet. “We’re not yet seeing a very strong recovery in the broader economic numbers that would suggest the impact of tax reform is more than just temporary,” she said. “The market is very impatient.”

Adams said the tax cuts may help stocks later on, but investors always want to see better and faster growth, and now they’re not sure where that improvement will come from.

Industrial and basic materials companies and technology firms took some of the worst losses Tuesday. Caterpillar sharesslid 6.2% to $144.44. 3M tumbled 6.8% to $201.13.

The profits of chemical companies and other materials makers could also be affected as oil prices and other expenses rise. DowDuPont slid 3.7% to $63.18.

Aerospace company Boeing fell 2.9% to $329.06.

Bond prices slipped. The yield on the 10-year Treasury note rose to 2.99% from 2.98%. Earlier in the day it hit 3% for the first time since January 2014. At the start of this year, it was 2.43%.

Low interest rates have played a key role in the economic recovery of the last decade, and the yield on the 10year note is a benchmark for many kinds of interest rates, including mortgages. It has been climbing because investors expect higher economic growth and inflation.

Since the global financial crisis in 2008 and 2009, a combination of low inflation expectations and a bondbuying program by the Federal Reserve has helped keep bond yields low, but the yields have climbed this year as investors expect higher economic growth and inflation.

Alphabet slid 4.8% to $1,022.64 after the Google parent company said ad revenue and expenses both climbed. Other big technology companies also fell. Facebook dropped 3.7% to $159.69. Microsoft slid 2.3% to $93.12.

Online retailer Amazon sank 3.8% to $1,460.09.

The dollar rose to 108.67 yen from 108.65 yen. The euro rose to $1.2237 from $1.2205.

Benchmark U.S. crude oil fell 1.4% to $67.70 a barrel. Brent crude, used to price international oils, fell 1.1% to $73.86 a barrel. Wholesale gasoline fell 1.4% to $2.09 a gallon. Heating oil fell 0.6% to $2.13 a gallon. Natural gas rose 1.5% to $2.78 per 1,000 cubic feet.

Gold rose 0.7% to $1,333 an ounce. Silver climbed 0.7% to $16.70 an ounce. Copper rose 1% to $3.14 a pound.