Stocks get crushed in one of their worst days since Brexit

Markets Insider

  • Stocks traded lower on Tuesday, putting the market on track for its weakest two-day performance in at least six months.
  • This represents a pause from the recent rallies to all-time highs that some strategists have described as “parabolic.”
  • A decline in healthcare stocks and concerns about rising Treasury yields were among the drivers of the sell-off.

US stocks fell hard for a second straight day on Tuesday, pausing the recent rise that some strategists described as “parabolic.”

The Dow Jones industrial average fell 362 points, or 1.37%, in its third biggest single-day point drop since Brexit. It fell by more than 400 points earlier. Tuesday’s slide marked stocks’ weakest two-day performance in at least six months.

The move lower this week is being attributed to the bond market sell-off, which has taken the benchmark 10-year Treasury yield above 2.7%, its highest level in nearly four years.

Higher rates raise borrowing costs for companies, which is why investors in stocks get concerned. They also make stocks, a riskier investment, seem less attractive to bonds.

“The markets have run up quite a bit and there was no real catalyst for them to pause,” said Mona Mahajan, the US investment strategist at Allianz Global Investors. “This week, we got somewhat of a catalyst when the 10-year yield breached 2.65% and actually stayed there for quite some time – that was a technical level people were watching for,” she told Business Insider.

Healthcare stocks added to the market’s weakness on Tuesday, after Amazon, Berkshire Hathaway, and JPMorgan announced plans to create a business that would provide healthcare to their US employees at a “reasonable” cost. The sector was the biggest decliner on the S&P 500.

The S&P 500 closed down 31 points, or 1.09%, and the Nasdaq was down 64 points, or 0.86%.

10-year yield

10-year yield
Markets Insider

The rise in bond yields is improving their attractiveness relative to stocks, which many investors consider overvalued, said Mike van Dulken, the head of research at Accendo Markets. This is “stoking fear of a market reversal in the two asset classes following a 30-year bull market in the former and a Trump-inspired climb for the latter,” he said.

The drop in stocks comes during a week packed with key news for investors.

President Donald Trump delivers his first State of the Union address on Tuesday, during which he’s expected to address US trade and the economy. Federal Reserve Chair Janet Yellen presides over her final policy meeting on Tuesday and Wednesday.

And on Friday, the jobs report is likely to show that average hourly earnings increased year over year – a sign of higher inflation – according to economists polled by Bloomberg.

“Investors are rightly pausing to take a break after a strong period in which volatility has been very low and assets have been supported by low rates, low inflation, and easy monetary policy,” said Michael Arone, the chief investment strategist at State Street Global Advisors.

“Given what’s going on right now, I think it’s healthy for investors to take some profits and see what happens with some of these events in the next week to determine their next course of action.”