Stocks slump as bond yields jump
Major gauges fall as rise in Treasury yields sparks worries about interest rates; energy selloff factors too.
NEW YORK (CNNMoney.com) - A spike in Treasury bond yields sent stocks lower Monday, with investors bailing out of economically-sensitive areas of the market.
The Dow Jones industrial average (down 63.00 to 10,958.59, Charts) lost 0.6 percent. The Nasdaq composite (down 16.57 to 2,286.03, Charts) and the Standard & Poor's 500 (down 8.97 to 1,278.26, Charts) index both lost around 0.7 percent.
All three major gauges had traded on both sides of unchanged throughout the early afternoon, before turning decidedly lower in the afternoon on the jump in bond yields.
Long-term bond yields have risen about 25 basis points in the past six sessions, putting pressure on stocks, said Steven Goldman, market strategist at Weeden & Co.
"You've got bond yields starting to approach levels that make them competitive with stocks," Goldman said. "We're testing 2004 levels, and just like in 2004, the runup is a bit of a discomfort for stocks."
He said that while the move up in bond yields so far is pretty moderate, it's happening at the same time that the major stock gauges are struggling at important technical levels, so it's causing these declines.
Economically-sensitive stocks such as Dow component Caterpillar (down $1.39 to $73.22, Research), 3M (down $0.93 to $71.95, Research) and Alcoa (down $0.60 to $29.80, Research) were all hit. Gold and platinum prices tumbled as well.
Meanwhile, a fall in oil prices sent the oil stocks lower.
AT&T's $67 billion bid for BellSouth led a rash of mergers, normally a bullish sign that would have perked up Wall Street. But the deals failed to impact sentiment.
"We have a tremendous amount of takeover activity, led by AT&T, and one would have thought that would have been an impetus for the market," said Barry Hyman, equity strategist at Ehrenkrantz King Nussbaum. "But the major gauges seems to be floundering around key technical levels lately."
After the close, Texas Instruments (Research) narrowed its first-quarter earnings and revenue forecast to the higher end of the range it gave in January. Although that set the midpoint of the range above analysts' targets, the stock still declined about 2.5 percent in extended-hours trading.
Last week, fellow chipmaker Intel warned that first-quarter revenue would miss forecasts.
Tuesday morning brings the revised read on fourth-quarter productivity. Reports are due later in the week on the trade balance and the February job report.
As of 6:00 p.m. ET, Nasdaq and S&P futures point to a flat open for stocks Tuesday, when fair value is taken into account.
Oil falls, bond yields rise
U.S. light crude oil for April delivery tumbled $1.26 to $62.41 a barrel on the New York Mercantile Exchange, a fall of about 2 percent.
Oil fell amid less worries about supply disruption in Iran on reports that the U.N.'s nuclear watchdog thought a deal could be reached with the country. Additionally, OPEC ministers are saying that Wednesday's meeting of the group should keep production near the maximum output level.
That sent oil stocks sliding. The Philadelphia Oil Service (Charts) sector index lost 4 percent.
Decliners included components Baker Hughes (down $3.44 to $66.68, Research), Weatherford International (down $2.19 to $42.29, Research) and Smith International (down $2.00 to $38.12, Research), which all lost around 5 percent. Component Rowan Companies (down $2.49 to $39.63, Research) lost close to 6 percent.
Investors also reacted to a surge in bond yields.
Treasury prices slumped for a third session, raising the yield on the 10-year note to around 4.75 percent -- the highest since June 2004 -- from 4.68 percent amid ongoing concerns about higher global rates. Treasury prices and yields move in opposite directions.
AT&T buys BellSouth
Dow component AT&T said Sunday that it was purchasing BellSouth for $67 billion in stock -- a move that goes a long way toward unwinding the breakup of the old AT&T in 1984. As part of the deal, AT&T would get the part of Cingular Wireless it doesn't already own.
The deal initially gave a boost to the broader telecom sector, but the sector gave back gains in late trade, with only a few stocks remaining higher. Qwest Communications (up $0.25 to $6.84, Research) and Sprint Nextel (up $1.10 to $25.30, Research) both rose modestly.
Mergers at this level are usually seen as a good sign for the stock market since they show companies are expecting further strength in the months ahead.
AT&T-BellSouth was not the only deal on the session.
The maker of the Blackberry wireless e-mail device said after the close Friday that it has settled its dispute with patent holding company NTP, therefore avoiding a shutdown of Blackberry service.
Market breadth was negative. On the New York Stock Exchange, decliners topped advancers by more than eleven to five on volume of 1.65 billion shares. On the Nasdaq, losers topped winners three to two on volume of around 2.15 billion shares.
Investors also took in the January read on factory orders, released shortly after the open. Orders fell 4.5 percent, versus expectations for a fall of 5.5 percent. Orders fell 1.1 percent in December.
In currency trading, the dollar was little changed versus the euro and the yen, giving back earlier gains.
COMEX gold for April delivery fell $11.20 to settle at $556.80 an ounce.
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