Stock indexes fall on rate-hike fears
The stock market’s fantastic start to 2018 stalled Wednesday after real estate firms and other dividend payers sank on concerns about rising interest rates.
The losses knocked indexes a bit off their record highs and provided the first minor hiccup for a market that had climbed six straight trading days. Stocks fell after the yield on the 10-year Treasury note reached its highest level since March, but they ended up recovering most of their losses as rates pulled back.
Kirk Hartman, global chief investment officer for Wells Fargo Asset Management, expects the market to be more volatile this year than last.
That’s in part because he expects interest rates to climb as the government’s need to borrow rises and as the Federal Reserve raises rates and pulls back from bond purchases it made to aid the economy.
Low interest rates have been one of the main propellants of the stock market’s smooth rise to record highs. They make borrowing easier, which greases the skids for economic growth. Low rates also make bonds less attractive, which pushes investors into stocks.
Investors have long been preparing for a gradual rise in bond yields, and Hartman said stocks can keep climbing as long as rates rise at a measured pace. But a sudden or sharp jump in rates could easily upset markets.
The yield on the 10-year Treasury went as high as 2.59% before falling back to 2.55%, the level it was at late Tuesday. That’s up from 2.40% at the start of the year.
A report from Bloomberg News said that China is considering a slowdown or halt to its purchases of Treasury notes, which helped push rates higher. Investors are also wondering whether Japan’s central bank will slow its bond purchases.
The rates’ rise slammed stocks that pay big dividends. Real estate stocks fell 1.5%, the sharpest loss of the sectors in the Standard & Poor’s 500 index. Utilities lost 1.1%. Telecoms fell 0.9%.
Banks, meanwhile, can make bigger profits from loans when interest rates rise. Financial stocks in the S&P 500 rose 0.8%.
United Continental rose 6.7% to $73.08 — the biggest gain in the S&P 500 — after the airline said a key revenue trend last quarter was better than it had forecast.
Signet Jewelers slid 6.9% to $52.69 — the largest loss of the S&P 500 — after it reported weaker holiday-season sales than a year earlier.
The dollar fell to 111.35 yen from 112.61 yen. The euro rose to $1.1957 from $1.1933.
Benchmark U.S. crude rose 61 cents to $63.57 a barrel. Brent crude rose 38 cents to $69.20 a barrel. Gold rose $5.60 to $1,319.30 an ounce. Silver rose 3 cents to $17.04 an ounce. Copper rose 2 cents to $3.24 a pound.