Dow Falls Nearly 500 Points as Bond Yields Surge, Energy Crisis Rattles Markets

Stocks slumped lower Tuesday, with tech leading the declines, as government bond yields surged alongside commodity prices amid the extended energy crunch sweeping its way across the world.

© TheStreet Breaking News: Dow Ends Down Over 500 Points

The Dow Jones Industrial Average fell 486 points, or 1.40%, to 34,382, with oil and banking stocks providing only limited support, while the S&P 500 slumped 1.7% at last check.

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The tech-focused Nasdaq Composite, which is more sensitive to interest rate increases, fell 2.5%, as Treasury bond yields surged, taking benchmark 10-year Treasury notes to 1.537%.

A poorly-received auction of $60 billion in 2-year notes yesterday, which drew the weakest demand levels since 2008 amid a plunge in foreign buyers, underscored the risked linked to debt ceiling negotiations and a pending government shutdown and sent yield surging to 18-month highs in overnight trading.

Meanwhile, Sen. Elizabeth Warren (D-Mass) said during a Senate Banking Committee meeting that she would oppose Federal Reserve Chairman Jerome Powell’s renomination.

“Your record gives me grave concerns,” Warren said. “Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed, and it’s why I will oppose your renomination.”

A weaker-than-expected reading for September consumer confidence, which came in at a six-month low of 109.3, added to the market’s pessimism.

Charlie Ripley, senior Investment Strategist for Allianz Investment Management, commented about today’s market sell-off.

“Today’s interest rate induced sell-off is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon,” Ripley said. “This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again.”

However, Ripley added, “we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn’t think the economy was ready.”

Natural gas prices hit fresh record highs in Europe, trading more than five times the level seen in North American markets.

U.K. Prime Minister Boris Johnson has put British troops on standby as the nation remains gripped by a shortage of gasoline that has left stations without fuel for a third consecutive day.

China contended with rolling blackouts linked to a lack of coal, higher energy prices and tougher emissions standards that have slowed industrial profits for six consecutive months and affected as much as two-thirds of the manufacturing activity in the world’s second largest economy.

Oil prices surged in early trading before coming down slightly. WTI crude slipped marginally to $74.95 a barrel, while Brent crude was off nearly 1% to $78.76.

On Tuesday, Goldman Sachs energy analysts lifted their year-end Brent oil forecast to $90 from $80, citing the impact of Hurricane Ida.

“With energy-related commodity prices likely to remain elevated in the near-term, the energy sector has the potential to deliver positive earnings surprises and remains one of our preferred beneficiaries of global reopening,” said Mark Haefele, UBS Global Wealth Management’s chief investment officer.

While higher prices of raw materials are likely to feature in some companies’ third-quarter earnings results and guidance, Haefele said, “rapid revenue growth should offset the cost pressures, supporting profits.”

Ford shares advanced after the carmaker unveiled plans to build four new U.S.-based manufacturing plants as it accelerates its transition into clean-energy vehicles.

Huntsman Corp. shares rose following news that activist investor Starboard Value have built an 8.4% stake, valued at more than $500 million, in the chemicals producer.

This article was originally published by TheStreet.

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