Rising bond yields, soft earnings hit Wall Street

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks slumped on Wednesday, as a round of disappointing corporate earnings and a spike in bond yields put both the Dow Industrials and S&P 500 index on track for their worst session in seven weeks.

Benchmark U.S. 10-year note > yields hit a seven-month high of 2.475 percent, buoyed by economic data, recent optimism over progress on tax reform by U.S. President Donald Trump's administration and anticipation of a nominee to head the Federal Reserve.

"This is something that's been brewing for a few days, high dividend-paying names have been weak, weak, weak and the reason is this new move in the 10-year and the 30-year," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

 

"Although they aren't particularly dramatic, that has people concerned that there's changes in policy, that things are going to come to an end, that we're going to be faced with higher rates, and as a result of that, equities are worth less."

Equities pared losses as yields retreated, following a Fox Business interview with Trump in which he said he was still considering keeping current Fed Chair Janet Yellen in the position. The 10-year last fell 11/32 in price to yield 2.4444 percent.

Low interest rates have been a driving factor in the 8-year bull market, with investors pushed into equities as other lesser-yielding instruments are viewed as unattractive by comparison.

Earnings season so far has been largely positive, with 72.1 percent of the 165 S&P 500 companies that have reported to date topping expectations, matching the average for the past four quarters.

However, with U.S. indexes at record levels, investors are taking a closer look at earnings to see if they justify stretched valuations.

Traders also cited a Wall Street Journal report that suggested - in contrast to commitments by President Trump - that Republicans were still considering limits on 401(k) retirement savings plans which could, in turn, dampen flows into investment funds.

Downbeat earnings from AT&T sent shares in the United States' second-largest wireless carrier down 3.7 percent, pulling down other telecom stocks Verizon and CenturyLink

Boeing , off 3.3 percent, surprised investors by revealing a $329 million charge for its troubled KC-46 aerial refuelling tanker programme in quarterly results.

The Dow Jones Industrial Average <.DJI> fell 111.22 points, or 0.47 percent, to 23,330.54, the S&P 500 <.SPX> lost 12.51 points, or 0.49 percent, to 2,556.62 and the Nasdaq Composite <.IXIC> dropped 37.58 points, or 0.57 percent, to 6,560.85.

Selling was broad, with each of the 11 major S&P sectors in negative territory.

AMD shares tumbled 12.0 percent after the chipmaker flagged competitive pressures with a forecast that pointed to a drop in revenue in the fourth quarter from the third.

Chipotle plunged 14.4 percent after the burrito chain posted disappointing sales and earnings, adding to a raft of bad news for the company this year.

Declining issues outnumbered advancing ones on the NYSE by a 3.17-to-1 ratio; on Nasdaq, a 2.2-to-1 ratio favoured decliners.

(Additional reporting by Caroline Valetkevitch; Editing by Nick Zieminski)