Wall Street ended sharply lower on Thursday, hit by rising Treasury yields and fresh worries about the coronavirus pandemic in Europe. The TSX also closed lower, with the energy sector taking a tumble on the biggest one-day fall in crude oil since last summer.
Losses in stocks accelerated after France’s prime minister imposed a month-long lockdown on Paris and several other regions due to the health crisis.
“That last hit was from news of the Paris lockdown. It wasn’t received that well,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “Here in the United States, we anticipate this big reopening and the virus is looking good, but we are not looking outside of the U.S., and it’s not all good.”
The yield on the benchmark 10-year Treasuries crossed 1.75% to hit a 14-month high a day after the Fed projected the strongest growth in nearly 40 years as the COVID-19 crisis winds down. The Fed also repeated its pledge to keep its target interest rate near zero for years to come. Canada’s 10-year rose as high as 1.677%, according to unofficial data, its highest since late 2019
“The Fed just saying they are not going to raise rates until 2023 really means nothing,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “The Fed is on the sidelines, but if bond yields keep going up, that is what really hurts the economy.”
Yields eased a bit after the release of data showing the number of Americans filing for jobless benefits unexpectedly rose last week, while a separate report indicated the Philly Fed business index jumped more than expected to its highest level since 1973.
Jim Vogel, senior rates strategist, at FHN Financial in Memphis, Tennessee, said the market is “reacting totally in fear of the worst possible scenario: that inflation runs out of control and the Fed can’t get it back.”
“In effect that’s a tail risk wagging the entire market at this point,” he said.
A recent US$1.9 trillion spending stimulus sparked fears of rising inflation and contributed to the jump in longer-end Treasury yields.
The S&P/TSX Composite Index closed down 146.63 points, or 0.77%, at 18,836.47, with energy stocks tumbling 5.24%. The tech sector was also under pressure, falling nearly 2%.
Brent futures dropped $4.72, or 6.9%, to settle at $63.28 a barrel, while U.S. West Texas International (WTI) crude fell $4.60, or 7.1%, to settle at $60.
Oil is getting hammered on growing worries about rising COVID-19 cases in Europe and the strengthening U.S. dollar.
Both contracts are down more than 11% since hitting recent highs on March 8. Oil has been down for five days in a row, the longest for WTI since February 2020 and for Brent since September 2020. It comes after speculators built the largest long position in CME-traded U.S. crude futures and options since 2018.
After the market close, both crude benchmarks continued to lose ground, each shedding over $6 a barrel, or 9%.
In addition to France, several large European economies have had to reimpose lockdowns as caseloads rise, while vaccination programs are slowing due to concerns about side effects of the AstraZeneca vaccine that was being widely distributed in Europe.
“A best-case scenario for demand recovery had been priced into this market. Everyone was celebrating the vaccine rollout and reduced restrictions,” said John Kilduff, partner at Again Capital LLC in New York.
“Now in Europe, it’s gone off the rails almost completely. Lockdowns in Poland and Italy strike at the heart of this whole demand recovery narrative and thesis that pumped up prices.”
Britain will have to slow its COVID-19 vaccine rollout next month due to a supply crunch caused by delays in shipments of millions of AstraZeneca shots from India, and the need to test the stability of an additional 1.7 million doses.
“Europe is seeing a third straight week of rising COVID-19 cases and with vaccination hurdles remaining in place,” said Edward Moya, senior market analyst at OANDA in New York.
A number of European countries have halted use of the AstraZeneca shot because of concerns about possible side effects, though the World Health Organization said Europe should continue to use the vaccine.
Meanwhile, U.S. crude inventories rose for the fourth straight week after severe cold weather in Texas and the central part of the country in February forced shutdowns at refineries.
The S&P 500 energy sector index tumbled 4.7%. The Russell 1000 value index, which is heavily comprised of cyclical stocks such as financials and energy, lost 0.6%, while the Russell 1000 growth index, which includes technology stocks, dropped more than 2%.
Apple Inc and Amazon.com Inc both dropped more than 3%. Tech and other growth stocks are particularly sensitive to rising yields because their value rests heavily on earnings far into the future, which are discounted more deeply when bond yields rise.
The Dow Jones Industrial Average fell 0.46% to end at 32,862.3 points, while the S&P 500 lost 1.48% to 3,915.47. The Nasdaq Composite dropped 3.02% to 13,116.17.
The TSX, S&P 500 and the Dow both all closed at record highs on Wednesday.
Declining issues outnumbered advancing ones on the NYSE by a 3.69-to-1 ratio; on Nasdaq, a 3.42-to-1 ratio favored decliners.
The S&P 500 posted 85 new 52-week highs and no new lows; the Nasdaq Composite recorded 213 new highs and 28 new lows.
Volume on U.S. exchanges was 12.8 billion shares, compared with the 14.2 billion average for the full session over the last 20 trading days.
The April gold contract was up US$5.40 at US$1,732.50 an ounce and the May copper contract was down 1.1 cents at nearly US$4.11 a pound.
Read more: Stocks that saw action on Thursday - and why
Reuters, Globe staff
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