'Twas another wild day with the Dow going down, down, down, trading in over a 200 point range until late in the day when there was a modest recovery to close down 83.  Once again as yesterday, the tumble in consumer staples was the main culprit as higher yields in the bond market had investors fleeing from the traditional defensive sectors, of which consumer staples is one.  Also weak Q1 reports from such stalwarts as Philip Morris and Procter & Gamble didn’t help matters.  Because of the higher yields, the financial sector and in particular American Express had an exceedingly good day.  So far ten percent of S&P companies have reported and nearly 80 percent have exceeded forecasts.  Volume remains below average at 6.5 billion. 

thu  APRIL 19, 2018 / 5:05 pm

Tobacco and tech drag on Wall Street; yields boost banks

Sinéad Carew

DJ:  24,664.89  -83.18         NAS:  7,238.06  -57.18         S&P:  2,693.13  -15.51      4/19

NEW YORK (Reuters) - Wall Street’s three major indexes closed lower on Thursday, with tobacco stocks leading a tumble in consumer staples while concerns about smartphone demand hurt the technology sector and rising bond yields and earnings helped financials rebound.

The market pared some losses late in the session after Bloomberg reported that Deputy Attorney General Rod Rosenstein told President Donald Trump last week he is not a target of Special Counsel Robert Mueller’s Russia investigation. The report cited two unnamed people familiar with the matter.

Cigarette giant Philip Morris International Inc (PM.N) was the second biggest weight on the S&P after weaker-than-expected results, also pulling down U.S. tobacco company Altria (MO.N).  A warning from Taiwan Semiconductor (TSMC) (2330.TW), the world’s largest contract chipmaker and an Apple Inc (AAPL.O) supplier, on soft demand for smartphones and on the industry’s growth this year sparked a tumble in chip stocks and made Apple the S&P’s second biggest weight. 

Along with weak results from Philip Morris and Procter & Gamble Co (PG.N), defensive sectors such as consumer staples .SPLRCS were also hurt by a rise in U.S. 10-year Treasury yields, which helped bank stocks.  “It’s pretty much dictated by the move in the bond market,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

When yields are high, investors favor bonds over defensive sectors such as consumer staples and real estate, which promise high dividends and slow, predictable growth. But banks benefit because high interest rates can boost their profits. 

“The sectors really tell the story. Financials are up because they do better in a higher rate environment,” said Richard Sichel, senior investment strategist at The Philadelphia Trust Company.

The Dow Jones Industrial Average .DJI fell 83.18 points, or 0.34 percent, to 24,664.89, the S&P 500 .SPX lost 15.51 points, or 0.57 percent, to 2,693.13 and the Nasdaq Composite .IXICdropped 57.18 points, or 0.78 percent, to 7,238.06. 

The S&P consumer staples sector was the benchmark’s biggest drag, closing down 3.2 percent, led by Philip Morris’ 15.6 percent slide. Altria, the parent of Philip Morris USA, fell 6 percent.  Procter & Gamble shares were down 3.3 percent after it said shrinking retailer inventories and higher commodities and transportation costs had squeezed its margins.  Apple shares fell 2.8 percent, making it the biggest drag on the S&P 500 on the day, as a raft of analysts said TSMC’s prediction of softer smartphone sales was driven chiefly by concern about demand for the company’s iPhones.  TSMC’s U.S.-listed shares (TSM.N) closed down 5.7 percent, while the Philadelphia SE semiconductor index .SOX tumbled 4.3 percent.

A 1.5 percent rise in the S&P’s financial sector .SPSY, was supported by a 7.6 percent jump in American Express Co (AXP.N) shares due to strong earnings as well as climbing yields.

But rising bond yields hurt homebuilders and the PHLX housing index .HGX fell 2.7 percent.

Of the 52 companies among the S&P 500 that have reported first-quarter earnings through Wednesday, 78.8 percent topped profit expectations, according to Thomson Reuters data.  Declining issues outnumbered advancing ones on the NYSE by a 2.22-to-1 ratio; on Nasdaq, a 1.71-to-1 ratio favored decliners.  The S&P 500 posted 22 new 52-week highs and 16 new lows; the Nasdaq Composite recorded 87 new highs and 52 new lows.

On U.S. exchanges 6.52 billion shares changed hands, compared with the 6.98 billion-share average for the last 20 sessions.