Markets plunge on earnings, T-bill yield
Treasury rates topped 3 percent Tuesday, for the first time in four years. For investors, the timing could hardly have been worse.
The rate milestone was never going to spark celebration on the stock market, because rising bond yields signal higher borrowing costs for consumers and companies and can send stock market investors scurrying to the bond market in search of returns. But it needn’t be all bad, especially if yields are increasing as economic growth is accelerating.
Enter Caterpillar, 3M and United Technologies, stalwarts of American industry that serve as bellwethers for key pieces of the global economy. Caterpillar shares saw their biggest decline since 2016, and 3M shares plunged the most in 12 years, with both warning that rising costs and tepid demand might hurt profits as the year goes on. Wall Street took the news as a warning that the worldwide economic expansion might be near its peak.
“It means economic growth might not be what the administration is saying, that the tax cuts will pay for themselves because you’ll have increased revenue from higher GDP,” said Donald Selkin, chief market strategist at Newbridge Securities. Everyone “is talking about the great earnings for the first quarter, but frankly every
stock that has reported has done lousy.”
The S&P 500 index sank 35.73 points, or 1.3 percent, to 2,634.56 — its biggest decline in three weeks. The Dow Jones industrial average finished with a loss of 424.56 points, or 1.7 percent, to 24,024.13. The Nasdaq composite dropped 121.25 points, or 1.7 percent, to 7,007.35.
Small-company stocks held up better than the rest of the market. The Russell 2000 index declined 8.84 points, or 0.6 percent, to 1,553.28, about half as much as the S&P 500, which tracks large U.S. companies.
Industrial, materials and tech stocks dropped more than 2 percent, offsetting gains from high-dividend shares such as telecom and utilities. Reappearing geopolitical concerns also weighed on equities after President Trump threatened Iran.
“It’s kind of like a paradox of sorts,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust, said. “You have strong earnings, in some areas not perfectly aligned on an expectational basis, but it’s relative to expectations. There’s an eye on interest rates, they’re not problematic but they are rising, and 3 percent is at least somewhat of a psychological level that gets peoples’ attention. And then you have the geopolitical issues.”
The stock market’s worry over future growth has persisted since companies started reporting quarterly results two weeks ago. While profits have come in about 7 percent higher than analyst estimates, stocks have seen muted reactions, a sign that investors are skeptical that the performance can be repeated once the effect of tax cuts wears off.
Alphabet slid 4.8 percent to $1,022.64 after the company reported Monday that ad revenue climbed but expenses also rose. Google’s parent company benefited from strong digital ad sales as well as an accounting change. Other big technology companies also fell, as Facebook dropped 3.7 percent to $159.69 and Microsoft skidded 2.3 percent to $93.12. Another market favorite, online retailer Amazon, shed 3.8 percent to $1,460.09.
Semiconductor companies, whose products are used in everything from mobile phones to autos to computers, are announcing disappointing results, blaming weaker demand. That in turn has hit Apple, amid growing speculation the new iPhone isn’t selling as well as had been hoped.
Government data due Friday is expected to show a slowing in economic expansion to an annual pace of 2 percent in the first quarter from 2.9 percent in the previous period.