Wall Street opens lower on rising bond yields, inflation concerns

(Reuters) – U.S. stocks opened sharply lower on Monday as rising bond yields continued to fuel the selloff in equities and hints of inflation pickup triggered concerns that the Federal Reserve might have to raise interest rates more quickly.

The yield on 10-year U.S. Treasury debt US10YT=RR hit a four-year high of 2.885 percent, having jumped almost 7 basis points on Friday.

Rising bond yields mean higher borrowing cost for companies and an alternative investment option for traders.

Wall Street’s three major indexes logged their biggest weekly losses in two years on Friday. The S&P 500 and the Dow saw their worst weeks since early January 2016 while the Nasdaq recorded its worst week since early Feb 2016.

It was also the biggest daily point fall in the Dow since December 2008 during the financial crisis.

Friday’s U.S. payrolls report showed wages growing at their fastest pace in more than eight years, fueling concerns that both inflation and interest rates would rise faster than expected.

Currently, traders are pricing in three rate hikes for 2018, but if the economy and corporate earnings continue to improve, the chances of a fourth increase becomes more likely.

The CBOE Volatility Index .VIX, the most widely followed barometer of expected near-term volatility for the S&P 500 Index, was trading at 18.86, its highest since November 2016.

“The selloff is continuing this morning and futures point to a lower opening as investors track rising yields,” Peter Cardillo, chief market economist at First Standard Financial in New York, wrote in a client note.

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“While we don’t think Friday’s selloff is the beginning of a severe correction, the pressure on stocks will continue with high volatility making the mood in the marketplace uncomfortable.”

The S&P has not slipped more than 2 percent on a single day in 2017. Even with last week’s losses, the index is still up 3.3 percent in 2018.

At 9:38 a.m. ET (1438 GMT), the Dow Jones Industrial Average .DJI was down 198.42 points, or 0.78 percent, at 25,322.54, the S&P 500 .SPX was down 18.16 points, or 0.65 percent, at 2,743.97.

The Nasdaq Composite .IXIC was down 48.80 points, or 0.67 percent, at 7,192.15.

All 11 major S&P sectors were lower, with the financial index’s .SPSY 1.53 percent fall leading the decliners.

Wells Fargo (WFC.N) fell 8.2 percent after the Fed imposed new regulatory restrictions over compliance issues. The drop weighed on other bank stocks as well with Bank of America (BAC.N), JPMorgan (JPM.N) and Citigroup (C.N) all down about 1 percent.

Qualcomm (QCOM.O) fell 1.6 percent after Broadcom (AVGO.O) raised its offer to buy the chipmaker. Broadcom shares were little changed.

Bristol-Myers Squibb (BMY.N) was up 3 percent after the drugmaker said a late-stage trial for a lung cancer drug met its main goal.

Declining issues outnumbered advancers on the NYSE by 2,144 to 559. On the Nasdaq, 2,044 issues fell and 522 advanced.

The S&P 500 index showed no new 52-week highs and 5 new lows, while the Nasdaq recorded 3 new highs and 60 new lows.

Reporting by Tanya Agrawal; Editing by Arun Koyyur

Our Standards:The Thomson Reuters Trust Principles.

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