Stocks battered for 3rd day
Dow down nearly 200 on worries about rising rates; 10-year note yield tops 5%; oil jumps; Gross sounds the alarm.
NEW YORK (CNNMoney.com) -- Stocks got pummeled for a third straight day Thursday as surging Treasury bond yields, higher mortgage rates and hawkish comments from bond guru Bill Gross magnified bets on Wall Street that the Federal Reserve may be forced to raise interest rates later this year.
The Dow Jones industrial average (down 193.49 to 13,272.18, Charts) tumbled nearly 200 points, or about 1.5 percent, according to early tallies, bringing its three-day loss to more than 400 points, or about 3 percent.
The Russell 2000 (down 15.87 to 825.34, Charts) small-cap index lost 1.9 percent.
Stocks also fell sharply Tuesday and Wednesday as investors mulled the prospect of higher rates after cautious comments from Federal Reserve officials, signs of rising inflation and in reaction to surging borrowing costs both at home and abroad.
Adding fuel to the fire late Thursday afternoon: comments from PIMCO's Bill Gross, who said that the Treasury bond market is entering a bear market.
Here's a look at what was moving stocks near the close.
The three-day selloff also shaved about 3.2 percent from the S&P 500 and 1.8 percent from the Nasdaq composite.
"Based on the last employment report and other recent economic info, it's clear that we are not getting an interest rate cut anytime soon," said Charles White, chief strategist at ThomasLloyd Global Asset Management. "We've got crude up at probably $70 a barrel in a few months and we saw a big technical support in the ten-year note yield give way today."
White said that all these factors were dragging on stocks today and could leave the S&P 500 ultimately down more than 5 percent from its recent high by the time the losses dry up. However, he said he would be surprised if the selloff proved to be more than that.
That's partly because the declines were not unexpected considering the recent run up that sent the Dow, S&P 500 and Russell 2000 to all-time highs, and the Nasdaq to a 6-year high.
Since tumbling in late February and early March on worries about slower global growth, stocks have been on the rise, thanks to better-than-expected earnings, corporate deals and stock buyback plans.
Those developments remain in place and are likely to keep a floor on any stock selloff in the weeks ahead, as investors wade through the typically choppy summer months.
"If you're a bear, you don't have a whole lot of ammo," White said. "LBOs and stock buybacks go on. There's ample money out there. From a supply and demand standpoint, there's still support for U.S. equities."
The slide boosted the yield on the benchmark 10-year note to 5.09 percent from 4.96 percent late Wednesday, making Thursday the first day the 10-year note has surpassed 5.0 percent, a key psychological level, since last summer. The yield briefly hit 5.13 percent, an 11-month high. Bond prices and yields move in opposite directions.
The run up in bond yields both raises rate hike worries and the threat of bonds becoming a more competitive investment than stocks.
In currency trading, the dollar rose versus the euro and the yen.
COMEX gold for July delivery fell $8.60 to $666 an ounce, falling with other dollar-traded commodities.
In economic news, April wholesale inventories rose 0.3 percent, as expected, after climbing 0.4 percent the previous month.
Stock investors also parsed a variety of May sales reports from the nation's retail chains. In general, sales rebounded modestly from April's weakness, thanks to warmer weather and early summer discounts. But spiking gas prices took a chunk out of any recovery.
Among the highlights: No. 1 retailer Wal-Mart Stores (down $0.99 to $49.76, Charts, Fortune 500) said sales at stores open a year or more, a retail sales measure known as same-store sales, rose 1.1 percent, at the low end of its forecast and short of analysts' estimates. The Dow component also issued a cautious June sales forecast, sending shares lower.
Rate-sensitive stocks continued to slump for the third session, with the Dow Jones Utilities (down 16.13 to 487.78, Charts) average losing over 2 percent.
Among other movers, homebuilders slumped on the rise in interest rates and in response to Meritage Homes (down $1.82 to $31.28, Charts), which warned that 2007 results won't meet estimates, because of weaker than expected April and May sales.
However, declines were broad based, with all 30 Dow stocks sliding, led by Alcoa (down $0.91 to $38.94, Charts, Fortune 500), Walt Disney (down $0.61 to $34.30, Charts, Fortune 500) and AT&T (down $0.77 to $39.61, Charts, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost 10 to 1 on volume of 1.33 billion shares. On the Nasdaq, decliners topped advancers 4 to 1 on volume of 1.73 billion shares.