US stocks were crushed in their worst day since Brexit

  • Stocks traded lower on Tuesday, putting the market on track for its weakest two-day performance in at least six months.
  • This represents a pause from the recent rallies to all-time highs that some strategists have described as “parabolic.”
  • A decline in healthcare stocks and concerns about rising Treasury yields were among the drivers of the sell-off.

US stocks fell hard for a second straight day on Tuesday, pausing the recent rise that some strategists described as “parabolic.”

If Tuesday ends up being anything like Monday, it could mark stocks’ weakest two-day performance in at least six months.

The move lower this week is being attributed to the bond market sell-off, which has taken the benchmark 10-year Treasury yield above 2.7%, its highest level in nearly four years.

Higher rates raise borrowing costs for companies, which is why investors in stocks get concerned. They also make stocks, a riskier investment, seem less attractive to bonds.

“We have now seen our second day of US equities posting triple-digit declines in the Dow,” said Mona Mahajan, the US investment strategist at Allianz Global Investors.

“We believe the upward move in yields, up 30 basis points to 2.71 today, has triggered concerns in equity markets that 1) the economic picture may slow a bit given financial tightening with higher rates, 2) the Fed may present a more hawkish stance given inflation expectations are clearly rising, and 3) a sell-off in bonds may create volatility in equities as well.”

Healthcare stocks added to the market’s weakness on Tuesday, after Amazon,Berkshire Hathaway, and JPMorgan announced plans to create a business that would provide healthcare to their US employees at a “reasonable” cost. The sector was the biggest decliner on the S&P 500.

At 1:08 p.m. ET, the Dow was down 387 points, or 1.5%, in its biggest single-day point drop since Brexit. It fell by more than 400 points earlier. The S&P 500 was down 32 points, or 1.12%, and the Nasdaq was down 79 points, or 1.06%.

Screen Shot 2018 01 30 at 9.22.30 AMMarkets Insider10-year yield

The rise in bond yields is improving their attractiveness relative to stocks, which many investors consider overvalued, said Mike van Dulken, the head of research at Accendo Markets. This is “stoking fear of a market reversal in the two asset classes following a 30-year bull market in the former and a Trump-inspired climb for the latter,” he said.

The drop in stocks comes during a week packed with key news for investors.

President Donald Trump delivers his first State of the Union address on Tuesday, during which he’s expected to address US trade and the economy. Federal Reserve Chair Janet Yellen presides over her final policy meeting on Tuesday and Wednesday. And on Friday, the jobs report is likely to show that average hourly earnings increased year over year – a sign of higher inflation – according to economists polled by Bloomberg.

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