MARKET SNAPSHOT Stocks fall sharply amid rate, oil worries Dow drops 160 pts as bond yield tops 5%, oil tops $67 By Nick Godt, MarketWatch Last Update: 2:26 PM ET Jun 7, 2007
NEW YORK (MarketWatch) -- U.S. stocks fell sharply on Thursday, sending the Dow Jones Industrial Average down by over 160 points, as an uptick in May sales from the nation's retailers and lower jobless claims helped push the yield of a key benchmark bond above 5%, further challenging the attractiveness of stocks. Global growth and rising interest rates in Europe and Asia have put the U.S. bond market under pressure, lifting yields to levels last seen since nearly a year ago. "We're seeing a continuation of the sell-off of the last couple of days, based on the move up in yields, and particularly with the 10-year bond above 5%," said Mike Malone, trading analyst at Cowen & Co. Adding to those concerns, crude oil topped $67 a barrel, amid delayed tanker loadings as a storm in the Persian Gulf was headed towards Iran. The Dow Jones Industrial Average fell 165 points to 13,299, after earlier falling by over 180 points to a low of 13,282. Of the Dow's 30 stocks, 29 retreated, led by the likes of 3M Co. (MMM)
The S&P 500 index ($SPX) fell 15 points to 1,502, while the Nasdaq Composite (COMP) lost 24.9 points to 2,562.
Trading volumes showed 1.2 billion shares exchanging hands on the New York Stock Exchange and 1.6 billion on the Nasdaq stock market. Declining issues topped gainers by 15 to 1 on the NYSE and by 23 to 5 on the Nasdaq.
Rising yields, rates
Investors have been warily monitoring rising bond yields since last week. Higher yields make bonds more attractive to investors relative to riskier bets in the stock market. Better-than-expected economic data, along with hawkish comments by Federal Reserve Chairman Ben Bernanke and other Fed officials have pressured the price of inflation-sensitive bonds, lifting their yields.
On Thursday, the yield of the benchmark 10-year Treasury bond finally topped 5% for the first time since August 2006. In recent action, the bond fell 1-3/32 to 95 8/32, yielding 5.11%. See Bonds.
At the same time, rising interest rates globally are also putting pressure on stocks.
On Thursday, the New Zealand central bank hiked rates to 8%. The Bank of England, on the other hand, held rates unchanged. On Wednesday, the European Central Bank hiked rates and issued a hawkish outlook.
Correction in the cards?
Market analysts also point to the U.S. market's record-setting rally, which began last summer and drove the Dow and the S&P 500 to record highs, with only a short-lived interruption in late February/early March.
"The overbought condition we've been looking at in the market has persisted for 2-1/2 months," said Marc Pado, market strategist at Cantor Fitzgerald. "Bull markets can produce a few 3-month overbought runs, but it typically doesn't last longer than that without some correction back to neutral."
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