A gauge of global equities suffered its longest losing streak this year on Wednesday as 10-year U.S. Treasury yields again scaled the 3-per-cent mark, stoking concerns about rising costs that could dampen corporate profits.
The benchmark 10-year note yield edged up to 3.035 per cent for a second day as jitters about growing federal borrowing spurred more selling in U.S. government debt. Should it climb above 3.041 per cent, its peak in January 2014, it will likely move into territory last seen in summer 2011, analysts said.
Benchmark 10-year notes last fell 12/32 in price to yield 3.0259 per cent, from 2.983 per cent late on Tuesday.
“Supply is clearly increasing with a rising deficit. We are seeing some signs of inflation. Those things are very negative for bonds,” said Don Ellenberger, head of multisector strategies at Federated Investors in Pittsburgh.
The climb in yields has dented demand for equities, with major Wall Street indexes dropping more than 1 per cent on Tuesday. In addition, large companies such as Caterpillar have warned about increased cost pressures.
U.S. stocks ended modestly higher in a choppy session, recovering from declines that had sent the S&P 500 down as much as 0.8 per cent.
The Dow Jones Industrial Average rose 59.7 points, or 0.25 per cent, to 24,083.83, the S&P 500 gained 4.84 points, or 0.18 per cent, to 2,639.4 and the Nasdaq Composite dropped 3.62 points, or 0.05 per cent, to 7,003.74.
All three major U.S. indexes fluctuated in choppy trading and the Dow flirted with its sixth consecutive decline during much of the session, which would have continued its longest losing streak since an 8-day slide in March 2017.
“I think there’s a bit of profit-taking churning through the market, and at the end of the day this is what a return to normal looks like,” said Chris Wolfe, chief investment officer of First Republic Private Wealth Management in San Francisco. “It’s messy, it’s choppy, and it’s far more normal that what we’ve been used to over the last five to seven years.”
Shares of Boeing were up 4.2 per cent after the company posted better-than-expected profits amid strong commercial airliner sales, leading it to raise its forecasts after a record 2017.
However, Twitter dropped 1.9 per cent after the social media company said it expects a slowdown in revenue growth and increasing costs, overshadowing its otherwise upbeat earnings report.
That followed Caterpillar’s 6.2-per-cent decline on Tuesday, when despite its earnings beat, investors were spooked by the company’s warning of higher costs.
“It’s become increasingly important that you have to beat on sales, you have to beat on earnings and you have to raise your guidance,” said Wolfe. “Investors are looking for that trifecta.”
Canada’s main stock index closed with a modest gain Wednesday.
The Toronto Stock Exchange’s S&P/TSX composite index closed up 32.75 points at 15,509.75, led by energy and industrials.
Energy stocks rose 1.5 per cent. Imperial Oil increased 2.5 per cent, while Canadian Natural Resources was up 1.8 per cent.
Despite reporting a bigger-than-expected quarterly loss, Cenovus Energy Inc finished up 5 per cent, recovering from a more than 6-per-cent drop earlier.
The materials group, which includes precious and base metals miners and fertilizer companies , fell 0.5 per cent. The biggest drags to the index were Teck Resources which declined 2.8 per cent and First Quantum Minerals, down 4 per cent.
The rise in yields overshadowed earnings from Kering and Credit Suisse in Europe, sending the pan-European STOXX 600 to its lowest close in a week, down 0.8 per cent.
The pan-European FTSEurofirst 300 index lost 0.75 per cent and MSCI’s gauge of stocks across the globe shed 0.50 per cent.
MSCI’s index was poised for its fifth straight decline, its longest losing streak since November.
Earnings season has gotten off to a stronger start than was initially expected, with the growth rate for the quarter currently at 22 per cent, according to Thomson Reuters data. The earnings growth expectation was 18.5 per cent at the start of April and 12.2 percent at the start of the year.
After the bell, Facebook Inc. announced a quarterly profit and revenue that beat analysts’ estimates, as the social media company’s mobile ad business grew on a major push to add more video content.
Shares of the company, which have fallen 9.5 per cent this year, were up 2.2 per cent at $163.18 after the bell.
Facebook said monthly active users in the first quarter rose to $2.2-billion, up 13 per cent from a year earlier.
The rally in bond yields pushed the dollar to a four-month high of 91.241 against a basket of major currencies and led investors to consider whether the greenback was breaking out of a prolonged weak spell.
Reuters