Dow slips again as bond yields edge higher after Fed announcement on bank capital

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MARKET SNAPSHOT

U.S. stocks were lower in early action Friday, with technology shares continuing to take a cue from a rise in bond yields, which ticked higher after the Federal Reserve said it would not extend temporary relief from capital-requirement rules for banks.

What are major indexes doing?

  • The Dow Jones Industrial Average fell 234.20 points, or 0.7%, to 32,628.10.
  • The S&P 500 was off 17.60 points, or 0.5%, at 3,897.86.
  • The Nasdaq Composite was down 25.42 points, or 0.2%, at 13,090.75.

On Thursday, stocks stumbled, with the Nasdaq Composite falling 3% as it suffered the brunt of selling pressure as bond yields rose. The Dow Jones Industrial Average gave up a gain to end lower, while the S&P 500 also slumped as a sharp selloff by oil futures dragged down energy shares.

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What’s driving the market?

Stocks slipped after the Fed said it it would allow an exemption that let banks to exclude Treasurys and deposits with the central bank from calculation of a key bank capital measure known as the supplementary leverage ratio to expire on March 31.

Financial sector stocks in particular fell early Friday after the Fed announcement. JPMorgan and Wells Fargo both slid 3%, while Goldman Sachs fell 1.5%.

Bond yields remain the main driver for financial markets, analysts said. The yield on the 10-year Treasury note erased an earlier decline to rise to 1.727% after the Fed decision, testing a 14 month high seen Thursday.

The jump in bond yields has hit technology and other growth stocks whose high valuations rely on expectations for earnings far into the future. The equities slump on Thursday came after the Federal Reserve struck a dovish tone at its policy meeting on Wednesday but bond yields rose on expectations for economic recovery and inflation this year.

“Although the Fed couldn’t have sounded more dovish this week, Powell and his colleagues have inadvertently given the green light for yields to continue surging by signaling that they are happy to let inflation overshoot their target as they prioritize growth and employment,” said Raffi Boyadjian, senior investment analyst at XM, in a note.

Read: The Fed is dovish but bond yields soared. What gives?

Despite some signs of consolidation Friday, “it’s hard to see this rout in bonds subsiding soon,” Boyadjian said. “Without clear communication from the Fed on how far it is willing to see financial conditions tighten before it identifies the moves as disorderly, yields may keep on rising until markets find out what the central bank’s tolerance threshold is.”

Friday also marks quadruple-witching day, a term that refers to the simultaneous expiration of stock-index futures contracts, options on those contracts, single-stock futures and stock options. The quarterly event can sometimes lead to volatility.

Which companies are in focus?

  • Among banks, shares of JPMorgan Chase & Co. fell 2.5%, Wells Fargo & Co. dropped 3.4%, and Citigroup Inc. shed 2.1%.
  • Shares of Nike Inc. were down 3.7% after the athletic apparel company said late Thursday that sales grew slower than expected in the fourth quarter due to supply-chain disruptions, while earnings topped estimates.
  • FedEx Corp. late Thursday reported fiscal third-quarter profit and sales that easily topped Wall Street forecasts, saying that it expects demand for its logistics and delivery business “to remain very high for the foreseeable future.” Shares were up 5.6%.

How are other markets trading?

  • The ICE U.S. Dollar Index a measure of the currency against a basket of the greenback’s six major rivals, was up 0.2%.
  • Oil futures were higher after Thursday’s slump, with the U.S. benchmark down 0.1% at $59.99 a barrel.
  • Gold futures edged higher, with the April contract up 0.1% to $1,734.10 an ounce.
  • In Europe, the Stoxx 600 index was down 0.9%, while London’s FTSE 100 shed 1.2%.
  • In Asia, the Shanghai Composite dropped 1.7%, Hong Kong’s Hang Seng Index fell 1.4% and Japan’s Nikkei 225 dropped 1.4%.
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