Dow plummets 425 points as interest rates surge

Should investors expect more market volatility?

GuideStone Capital Management President David Spika on why investors should expect to see more uncertainty in the stock market.

U.S. stocks tumbled on Tuesday as surging bond yields and disappointing outlooks from Caterpillar and 3M sent investors stampeding out of equities.

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The Dow Jones Industrial Average fell 424.56 points, or 1.74%, to 24,024.13, marking the blue-chip index’s fifth straight day of losses and its longest losing streak in 13 months. The S&P 500 dropped 35.73 points, or 1.34%, to 2,634.56. The Nasdaq Composite was down 121.25 points, or 1.7%, at 7,007.35.

The decline in share prices followed the rise in the yield on 10-year U.S. Treasury notes to the psychologically significant 3% level. It was the first time in more than four years that the benchmark yield, which began the year at 2.43%, had reached that level.

Higher interest rates mean greater expense for local and state governments and corporations, something that hammers profits. Rather than keeping their money in companies that are facing shrinking margins, investors were electing Tuesday to sell.

Stocks were weighed down by industrial stocks after 3M, which makes Post-it notes, cut its 2018 profit forecast. The manufacturer fell 6.8% to record its biggest one-day drop since the financial crisis.

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3M, Boeing and Caterpillar shaved 234 points off the Dow, contributing more than half of the index’s selloff.

Caterpillar shares were down 6.2% after the company said on a conference call that first-quarter adjusted profit per share will be the "high watermark" for the year. Boeing fell 2.8% before the Wednesday publication of its earnings.

Six Dow stocks released their first-quarter results Tuesday morning, and overall they were positive. Caterpillar’s shares initially climbed after the company topped analysts’ profit and revenue forecasts and hiked its outlook.

TickerSecurityLastChange%Chg
CATCATERPILLAR INC.126.77+0.87+0.69%
3Mn.a.n.a.n.a.n.a.
UTXUNITED TECHNOLOGIES CORPORATION118.80-0.45-0.38%

The technology sector slipped 2%, driven lower by Alphabet. Google’s parent company saw its shares drop 4.8% despite reporting stronger earnings and revenue than expected.

Gary Kaltbaum, president of Kaltbaum Capital Management, said stocks were “flushing out” the earnings optimism that investors had already priced into the market.

“Markets look forwards, not backwards,” he told FOX Business' Melissa Francis and David Asman on “After the Bell.”

Ted Weisberg, founder and president of Seaport Securities, said earnings reports “on balance were pretty good. But stocks were already “priced to perfection,” leaving little room for error as companies reported financial results, he added.

Economic data released Tuesday morning included a reading on home sales, which surged to a near four-year high. The S&P/Case-Shiller index rose a seasonally adjusted 0.5% and was up 6.3% compared with a year ago in February. U.S. consumer confidence rose to 128.7 in April from 127 in March.

West Texas Intermediate crude fell 1.37% to $67.70 a barrel.

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