U.S. Stocks Move Sharply Lower Amid Surging Treasury Yields

(RTTNews) - Following a moderate pullback in the previous session, stocks showed a more substantial move to the downside during trading on Wednesday. The major averages rebounded from an initial decline but once again slumped into negative territory as the day progressed.

The major averages ended the day off their worst levels but still sharply lower. The Dow plunged 816.80 points or 1.9 percent to 41,860.44, the S&P 500 slumped 95.85 points or 1.6 percent to 5,844.61 and the Nasdaq tumbled 270.07 points or 1.4 percent to 18,872.64.

The weakness on Wall Street came amid lingering uncertainty about the outlook for trade and the global economy following the surge seen over the past several weeks.

Stocks have shown a substantial recovery from their early April lows, but traders have recently been questioning the strength of the rebound amid a lack of clear progress on new trade deals.

A continued increase by bond yields also generated selling pressure, with the thirty-year bond yield climbing above 5 percent due to concerns a new U.S. tax bill could worsen the country's deficit.

President Donald Trump's sweeping tax and spending bill is one step closer to a full vote in the House of Representatives, with economists warning the proposal would add more than $2.5 trillion to the federal debt over the next decade.

Treasury yields saw further upside after the Treasury Department revealed this month's auction of $16 billion worth of twenty-year bonds attracted below average demand.

The twenty-year bond auction drew a high yield of 5.047 percent and a bid-to-cover ratio of 2.46, while the ten previous twenty-year bond auctions had an average bid-to-cover ratio of 2.58.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Sector News

Airline stocks showed a substantial move to the downside on the day, resulting in a 3.7 percent nosedive by the NYSE Arca Airline Index.

Considerable weakness also emerged among banking stocks, as reflected by the 3.1 percent slump by the KBW Bank Index.

Oil service, housing and commercial real estate stocks also saw notable weakness, while gold stocks bucked the downtrend amid a continued increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Hong Kong's Hang Seng Index rose by 0.6 percent and China's Shanghai Composite Index inched up by 0.2 percent, although Japan's Nikkei 225 Index bucked the uptrend and fell by 0.6 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the French CAC 40 Index fell by 0.4 percent, the U.K.'s FTSE 100 Index inched up by 0.1 percent and the German DAX Index climbed by 0.4 percent.

In the bond market, treasuries moved sharply lower after ending the previous session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged 11.5 basis points to 4.596 percent.

Looking Ahead

Following a few relatively quiet days on the U.S. economic front, trading on Thursday may be impacted by reaction to reports on weekly jobless claims and existing home sales.