The day started with a modest 40 point loss on the Dow and just kept going south all day after that.  The difference between the session low and high was nearly 400 points before it recovered in the last hour to close down 200.  Today the problem was the climbing 10-year Treasury note reaching a seven year high.  Why?  The economic data is all very strong, which makes Treasury yields very attractive but also threatens stocks and stokes fears of inflation.  Jobless claims also fell to a 49 year low but tomorrow’s jobs report will tell the real tale.  If jobs are strong, the irony is that it’s more good news for the economy but bad news for stocks which suffer if there’s enough good news to justify more rate hikes.  One of the biggest drags today was that all the FAANG stocks did poorly, some like Netflix dropping more than 3.5 percent.  The good news is that, despite today’s so-called bad news, stocks remain near record levels.  For the second day, no volume data was included in this report. 

thu  OCTOBER 4, 2018 / 6:01 pm 

Wall Street stumbles as bond yield climb continues

Chuck Mikolajczak

DJ:  26,627.48  -200.91       NAS:  7,879.51  -145.57        S&P:  2,901.61  -23.90      10/4

NEW YORK (Reuters) - Wall Street stocks stumbled on Thursday as U.S. Treasury yields continued their ascent to multi-year highs on the latest round of strong economic data, building concerns for an acceleration of inflation.  The Dow suffered its first decline in six sessions, while both the S&P and Nasdaq had their worst day since June 25. 

The yield on the benchmark 10-year Treasury note US10YT=RR climbed to a seven-year high of 3.232 percent, marking its largest daily jump since the 2016 U.S. presidential election. Data on jobless claims and factory orders were the latest in a round of strong economic reports this week, putting the focus squarely on Friday’s payrolls report for September.  “The follow-through on the Treasury rates today, actually the follow-through worldwide on Treasuries, has a big part to do with this,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago.  “And just in general, so many of these sectors have been so hot it may be time to take a little break,” he added.

Financials .SPSY were one of the few bright spots on Wall Street, rising 0.71 percent. Banks .SPXBK, which typically benefit from rising rates, gained 0.81 percent.  Thursday’s data, which showed jobless claims fell to a near 49-year low, followed comments this week from several Federal Reserve officials, including Chairman Jerome Powell, that underscored the strength of the economy.

The Dow Jones Industrial Average .DJI fell 200.91 points, or 0.75 percent, to 26,627.48, the S&P 500 .SPX lost 23.90 points, or 0.82 percent, to 2,901.61 and the Nasdaq Composite .IXIC dropped 145.58 points, or 1.81 percent, to 7,879.51.  Equities have struggled over the past year when interest rates climbed faster than investors were anticipating. 

Among the biggest drags on the S&P were the so-called FANG group of stocks, which were among shares that helped propel the Nasdaq to its recent record high. Google parent Alphabet Inc (GOOGL.O) sank 2.8 percent and Netflix Inc (NFLX.O) slumped 3.6 percent.

Apple Inc AAPL.O. lost 1.76 percent, and Amazon.com Inc, shed 2.22 percent. Both companies denied a Bloomberg report their systems had been infiltrated by malicious computer chips inserted by Chinese intelligence.  “Investors are concerned. Are more parts of the global technology supply chain hacked?” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

Market participants will be looking closely for signs of wage growth in Friday’s jobs number, especially in light of anecdotal indications of rising wages such as Amazon’s raising its minimum wage to $15 earlier this week.  Despite the pullback, U.S. stocks remain near record levels, raising some concern about valuations with the quarterly earnings reporting season about to begin.

Among gainers, Constellation Brands (STZ.N) rose 5.38 percent after the Corona beer maker raised its full-year profit forecast and topped Wall Street’s estimates for second-quarter sales and profit.  Eli Lilly (LLY.N) shares gained 4.02 percent after the company’s experimental diabetes drug showed promise in a mid-stage trial. 

Declining issues outnumbered advancing ones on the NYSE by a 3.98-to-1 ratio; on Nasdaq, a 3.55-to-1 ratio favored decliners.  There were 831 stocks hitting new 52-week lows across all U.S. exchanges, the most since stocks were beginning to pull out of correction territory on Feb. 9, versus 92 new 52-week highs.