Investors are watching for any hints that central banks might tighten their monetary policies.
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The dollar gained for the third day in a row after Federal Reserve Bank of Boston President Eric Rosengren spurred bets of an interest-rate hike by year-end, saying the US economy could overheat if policy makers wait too long to tighten. “You’re going to see a rotation within the equity market and that’s going to be people getting more comfortable owning asset managers and financial companies”.
“The stocks that have been preferred for so long are those dividend stocks, so some of the stock exposure is very credit-like and you have that high correlation between stocks and bonds”, Jeremy Hill, head of markets at Levy Harkins & Co inc.in NY, said by phone.
Concerted declines of this size in stocks and bonds are rare though not unheard of, and are usually associated with central bank hawkishness.
The S&P 500 was down 29.04 points, or 1.35 percent, at 2,130 and the Nasdaq Composite was down 56.15 points, or 1.08 percent, at 5,155.73.
Futures traders cut the chances of rate hike at the meeting to just 15 percent from 21 percent, according to the CME Group’s FedWatch tool. Before Friday, when the S&P 500 fell 2.45 percent, the index had not moved by more than 1 percent since July 8. It also closed below its 50-day moving average for the first time since June.
The Dow Jones Industrial Average is down about 13 points at 18,074.
Shares of defensive stocks led declines on United States exchanges as trades that investors piled into in search of dividend yields reversed amid the spike in Treasury rates. The stock was the top percentage gainer on the S&P. France’s CAC 40 skidded 2.3 percent lower to 4,390.88 and Germany’s DAX fell 2.1 percent to 10,347.91. Hong Kong’s Hang Seng index was off 3.3 percent, and Japan’s Nikkei was down 1.7 percent.
A Bank of America Corp report showed fund managers withdrew money from Europe’s equity funds for a 31st straight week. It was the same story in Europe (http://www.marketwatch.com/story/european-stocks-punched-lower-on-prospect-of-higher-us-borrowing-rates-2016-09-12), where the Stoxx Europe 600 index gave up 1.5%.
The Kospi index slid 1.3 percent in Seoul after North Korea conducted its fifth nuclear arms test.
Real-estate investment trusts, coveted in recent months for their high payouts as Treasury yields languished near historic lows, dropped the most since August 2015. The rate on similar-maturity U.S. securities rose seven basis points to 2.38 percent.
The rebound was driven by a climb in defensive sectors such as utilities, telecoms and consumer staples and was aided by paring of losses in the energy sector as oil prices came off session lows.
An old Wall Street adage is never to sell a quiet a market, and the summer lull helped to keep the bears at bay, but summer is over.
The yield on 10-year gilts rose to a one-month high of 0.84 percent and the Japanese 10-year yield, which has been below zero since March, climbed to minus 0.02 percent.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.5 percent.
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CURRENCIES: The euro was down 0.1 per cent at $1.1225 while the dollar fell 0.7 per cent to 101.96 yen.
