Wall St pulls back from earlier gains as bond yields rise

05 February, 2018, 03:04 | Author: Darnell Patrick
  • Not high enough

Adding to the pressure were disappointing earnings reports from major companies. The benchmark S&P 500 stock index is on track for its first weekly decline in five. Based on the relationship between federal funds futures and the 5-year TIPS yield, an additional half-percentage point of Fed tightening should raise the TIPS yield by about 30 basis points (or 3/10 of a percentage point).

Oil rose after a survey showed the Organization of the Petroleum Exporting Countries' commitment to its supply cuts remains in place, even as USA production topped 10 million barrels per day for the first time since 1970.

Equity traders around the world have been firing on all cylinders in recent months, sending markets to record or multi-year highs, on confidence in the global economy, healthy earnings and optimism over Donald Trump's tax cuts. On Wednesday, it touched its strongest in more than four months at $1.2250.

Disappointing results from some of the largest US companies also weighed on stocks.

Wall Street gave up earlier gains on Thursday as bond yields rose and technology stocks retreated ahead of a host of high-profile earnings.

The dollar, which fell 3.25 percent in January to mark its weakest monthly performance since March 2016, pared gains against the yen as stocks fell in Europe and treaded water on Wall Street. Equity markets are torn between buoyant economic growth and double-digit company earnings, on the one hand, and the possibility that USA and euro zone central banks will tighten policy faster than expected, which is pushing up bond yields.

All this sets the stage for the Federal Reserve to continue raising interest rates, with the next hike expected in March.

Bond market strategists had expected a more gradual rise in bond yields, which move opposite price.

Initial claims for unemployment benefits came in below expectations, indicating a tight labour market. Also this week, the Fed said it now sees inflation reaching its 2 percent target this year.

At 9.37am ET (1437 GMT), the Dow Jones Industrial Average was down 91.9 points, or 0.35 per cent, at 26,057.49, the S&P 500 was down 2.26 points, or 0.08 per cent, at 2,821.55.

Six of the 11 major S&P indexes were higher, with the telecommunications index's 2.02 per cent rise leading the advancers.

Other notable stock movers included eBay, up 13.8 per cent after its earnings report, and its announcement that it would move away from PayPal as its main payments partner.

UPS (UPS.N) was down 6.1 percent after it reported fourth-quarter profit that was hurt by higher holiday season shipping costs. Doll said his target for fair value on the S&P 500 is 2,800 for year end.

"The selloff is just letting steam out of the kettle", said Stephen Massocca, managing director at Wedbush Securities in San Francisco. Industry heavyweights Apple, Alphabet and Amazon are due to report results after the bell.

Amazon.com (AMZN.O) was up over 6.0 percent in after hours trading after results.


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