Reuters Photo:NEW YORK - Wall Street fell sharply for a third straight session Thursday after rising bond yields stoked concerns that an interest rate cut later in the year is less likely. The Dow Jones industrials fell more than 100 points and the S&P 500 index hovered near the 1,500 mark.
The 10-year Treasury note's yield surpassed 5 percent in overnight trading. With rates rising in the market, the Federal Reserve is expected to be less inclined to cut short-term interest rates. And a dip in applications for unemployment benefits last week, which indicates a healthy labor market, also made a rate cut seem less likely.
Additionally, mixed May sales reports from major retailers indicated that consumer spending remains uncertain, particularly as gas prices rise and perhaps cut into consumers' spending money. While the array of fresh economic data didn't appear overly downbeat, stock market investors continued to pull back.
"I think there is some healthy profit-taking going on out there," said Michael Church, portfolio manager at Church Capital Management, describing concerns about bond yields as overblown. "Everyone seems to like to focus on this 5 percent level. I think it's in many ways mythical. Five percent is really not that high of an interest rate."
In early afternoon trading, the Dow fell 115.48, or 0.86 percent, to 13,350.19, though the blue chips briefly edged into positive territory early in the session following two days of declines.
Broader stock indicators fell. The Standard & Poor's 500 index fell 16.41, or 1.08 percent, to 1,500.97, and the Nasdaq composite index fell 26.99, or 1.04 percent, to 2,560.19.
Bonds fell sharply, with the yield on the benchmark 10-year Treasury note jumping to 5.12 percent from 4.97 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices fell.
Interest rate moves abroad contributed to the declines in the U.S. credit markets. On Thursday, the Bank of England decided to leave its benchmark rate steady, after New Zealand's central bank surprised markets by raising its rate to a record high 8 percent from 7.75 percent to curb inflation. On Wednesday, the European Central Bank raised its own rate as well.
Light, sweet crude rose 91 cents to $66.87 per barrel on the New York Mercantile Exchange amid concerns that U.S. refineries aren't keeping pace with demand.
On Wednesday, the three major indexes declined for a second day after a rise in labor costs raised inflation concerns. The Dow lost more than 210 points over Tuesday and Wednesday.
"Historically we're at lows," Church said, referring to interest rates. "I don't think 5 percent is some sort of hard and fast number where this market turns. I don't think 5 percent is going to compel people to take money out of equities."
He contends that after the run-up in stocks that began in the second half of last year and accelerated in recent weeks, Wall Street was due for some retrenchment.
"I would be concerned if we didn't have some profit-taking and some mild pullbacks here and there."
In corporate news, Wal-Mart Stores Inc.'s May same-store sales, or sales at stores open at least a year, rose 1.1 percent in May as the world's largest retailer saw an increase at its Sam's Club warehouse division lend a boost to overall results. Wal-Mart, one of the 30 components of the Dow industrials, fell 89 cents to $49.86.
Target Corp. fell $1.04 to $63.06 after reporting sales that fell short of Wall Street's forecast, though the company said sales met its expectations.
Saks Inc. jumped $1.11, or 5.8 percent, to $20.13 after the luxury retailer posted stronger-than-expected sales.
The Russell 2000 index of smaller companies fell 11.67, or 1.38 percent, to 829.61.
In overseas trading, China's benchmark Shanghai Composite Index rose 3 percent, while Japan's Nikkei stock average rose 0.07 percent. Britain's FTSE 100 closed down 0.27 percent, Germany's DAX index fell 1.44 percent, and France's CAC-40 fell 1.46 percent.
Source : news.yahoo.com
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