Stocks plummet as bond yields rise

Wall Street fell sharply for a third straight session Thursday after rising bond yields deflated hopes for an interest rate cut later in the year. The Dow Jones industrials fell nearly 200 points and the S&P 500 index fell below the 1,500 mark.

The yield on the Treasury’s 10-year note passed 5 percent Thursday, rising as high as 5.13 percent in early afternoon trading in New York, its highest point since mid-July. The move unnerved investors who contend the Federal Reserve will be less inclined to cut short-term interest rates.

Stocks also fell as retailers turned in mixed sales results for May. While sales figures improved from the prior month, investors faced some concerns that rising gas prices could cut into consumers’ spending money. The array of fresh economic news, which was in some cases positive, didn’t halt the selling.

“When this year started, Wall Street and global markets were too enthusiastic that central bank tightening was behind them,” said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc., referring to higher interest rates. “I think we’re seeing the realization that central banks are not in ease mode. People have been discounting the effect that rising bond yields would have on stocks and their valuations.”

The Dow fell 198.94, or 1.48 percent, to 13,266.73, bringing its three-day loss to more than 400 points.

Broader stock indicators also fell. The Standard & Poor’s 500 index fell 26.66, or 1.76 percent, to 1,490.72, and the Nasdaq composite index fell 45.80, or 1.77 percent, to 2,541.38.

For the week, following only modest moves Monday and then three declining sessions, the Dow is down 2.94 percent, while the S&P 500 is off 2.97 percent and the Nasdaq is down 2.78 percent.

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 sharply.

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 97 cents to $66.93 per barrel on the New York Mercantile Exchange amid concerns that U.S. refineries aren’t keeping pace with demand.

Thursday brought new economic data that did little to deter stocks’ downward slide. The Commerce Department said inventories among U.S. wholesalers rose 0.03 percent in April to a seasonally adjusted $394.54 billion after increasing a revised 0.4 percent in March. The March increase had been pegged at 0.3 percent.

The Russell 2000 index of smaller companies fell 15.89, or 1.89 percent, to 825.32.

Declining issues outnumbered advancers by about 10 to 1 on the New York Stock Exchange, where volume came to a heavy 1.91 billion shares compared with 1.55 billion traded Wednesday.

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.