2-5-18 9:58 AM EST | Email Article

By Barbara Kollmeyer, MarketWatch , Ryan Vlastelica

Wells Fargo leads financial stocks down

U.S. stocks fell on Monday, with last week's sharp move lower showing few signs of abating as equities dropped in a broad selloff and extended Friday's sharp decline.

Weakness was global, with both European and Asian stocks sharply lower on the day. Japanese stocks suffered their biggest one-day drop since November 2016.

What are the main benchmarks doing?

The Dow Jones Industrial Average fell 260 points, or 1%, to 25,266 after dropping more than 300 points in early action. The S&P 500 was down 30 points to 2,742, a decline of 0.7%. The Nasdaq Composite Index was off 61 points, or 0.8%, at 7,181.

Read:Jerome Powell sworn in as Fed chairman (http://www.marketwatch.com/story/jerome-powell-sworn-in-as-fed-chairman-2018-02-05-9103502)

Losses were broad, with 10 of the 11 primary S&P 500 sectors trading lower on the day. Financials were particular losers, with the sector tumbling 1.6% on the back of a sharp decline at Wells Fargo. The fall builds on the sector's 2.2% drop on Friday.

Friday represented the biggest one-day drop for the S&P since September 2016, and it capped the biggest weekly decline for both the Dow and the S&P in more than two years. The selloff followed a stronger-than-expected jobs report (http://www.marketwatch.com/story/dow-futures-tumble-more-than-250-points-on-jobs-day-2018-02-02), which investors took as a sign the Federal Reserve could be more aggressive in raising interest rates than previously expected.

Despite the losses, major indexes remain up more than 2% on the year.

What could help drive markets?

Rising bond yields could continue to peel some money away from equities. The yield on the 10-year U.S. Treasury note at one point reached as high as 2.883%. It has since dropped back to 2.844%, a gain of 5 basis points. The rise in yields means that bond prices are declining, as prices and yields move inversely to each other.

The 10-year yield has been trading around levels last seen four years ago in the wake of Friday's monthly jobs report that revealed a jump in wage growth. That stoked inflation fears and in turn, concerns the Federal Reserve will increase interest rates faster than expected. Jerome Powell will formally take over as chairman of the Federal Reserve on Monday, replacing Janet Yellen (http://www.marketwatch.com/story/yellen-to-join-bernanke-at-washington-think-tank-2018-02-02).

Read:Stock-market melt-up takes a timeout as bond yields rise (http://www.marketwatch.com/story/stock-market-taking-its-cues-from-bond-yields-2018-02-03)

Opinion:Tony Robbins on stock market corrections: Get used to them (http://www.marketwatch.com/story/tony-robbins-on-stock-market-corrections-get-used-to-them-2018-02-02)

What are strategists saying?

"The bond market selloff is the biggest catalyst behind the drop in stocks, as investors are worried about the Fed's timetable for raising rates. However, we've been going almost straight up since the start of the year, so this pullback is both expected and healthy," said Randy Frederick, vice president of trading and derivatives for Charles Schwab.

"It doesn't mean the bull market is over; it simply takes away some of the froth and irrational exuberance from stocks and puts us back on a more sustainable trendline."

At current levels, the Dow is more than 5 percentage points below its all-time high, while both the S&P and the Nasdaq are more than 4 percentage points below their own. The S&P has gone an unprecedented length of time (http://www.marketwatch.com/story/heres-another-milestone-the-sp-500-could-surpass-this-month-2018-01-03) without a 5% pullback, something that is historically extremely common.

"At this point, we would categorize this pullback as minor," wrote the global investment strategy team at the Wells Fargo Investment Institute, which noted that historically, the S&P has a 10% decline every 11 months. The benchmark index hasn't had such a drop since early 2016. "We believe that the market has been due for (at least) a consolidation."

Bank of America Merrill Lynch warned Friday (http://www.marketwatch.com/story/bank-of-america-sell-signal-triggered-for-stocks-2018-02-02) that a sell indicator has been triggered for the market as $102 billion has flowed into global equities in 2018. That is amid widespread concerns over valuations.

Which stocks look like key movers?

Wells Fargo Inc.(WFC) dropped 8.5% after the bank said Federal Reserve sanctions over customer-accounts scandals could cut into profit by as much as $400 million this year (http://www.marketwatch.com/story/wells-fargo-says-impact-from-fed-sanctions-may-reach-400-million-2018-02-03). The stock was the biggest decliner among financial shares, although the sector was broadly lower. Bank of America Corp. (BAC) fell 1.9% while Citigroup Inc. (C) was down 1.5% and JPMorgan Chase & Co. (JPM) was off 1%.

Bristol-Myers Squibb Co.(BMY) rose 0.8% after reporting positive results for advanced lung-cancer trial results (http://www.marketwatch.com/story/bristol-myers-surges-56-on-advanced-lung-cancer-trial-results-q4-earnings-2018-02-05), along with fourth-quarter profit and revenue beats.

Qualcomm Inc.'s stock (QCOM) fell 2.4%, erasing a premarket gain that came after Broadcom Ltd.(AVGO) boosted its bid to buy the chip maker (http://www.marketwatch.com/story/broadcoms-sets-best-and-final-buyout-bid-for-qualcomm-at-82-a-share-2018-02-05) by 17% to a "best and final offer" of $82 a share. Broadcom was up 0.7%.

Corcept Therapeutics Inc.(CORT) tumbled 25% after the drug market disclosed that it had been informed Teva Pharmaceutical Industries Ltd. (TEVA)had submitted a new drug application (http://www.marketwatch.com/story/corcepts-stock-tumbles-after-teva-submits-nda-for-generic-korlym-2018-02-05) for a generic version of Corcept's hyperglycemia treatment Korlym. U.S.-listed shares of Teva fell 2.7%.

Boeing Co.(BA) fell 2.5% and was the biggest percentage decliner among Dow components. The stock has been a strong outperformer of late, and it has more than doubled over the past 12 months.

Also weighing on the blue-chip average was Exxon Mobil Corp. (XOM), which was down 1.5% alongside a drop in the price of crude oil.

Investors may not be able to look to earnings for much inspiration as the bulk of U.S. companies have now reported, along with some of the biggest names. A few big companies are still to report this week, including General Motors Co.(GM) and Walt Disney Co.(DIS) on Tuesday, Tesla Inc.(TSLA) on Wednesday and Twitter Inc.(TWTR) on Thursday.

Which economic data reports are due?

In the latest economic data, the IHS Markit purchasing managers index for services fell to 53.3 in January from 53.7.

What are other assets doing?

European stocks (http://www.marketwatch.com/story/european-stocks-covered-in-sea-of-red-as-global-selloff-picks-up-steam-2018-02-05) were a sea of red, while Asian markets mostly suffered a broad selloff (http://www.marketwatch.com/story/asian-markets-pull-back-following-wall-streets-friday-flop-2018-02-04), with the Nikkei 225 index tumbling 2.5%. That was the biggest drop for the Japanese gauge since Nov. 9, 2016.

Gold futures steadied, while oil futures dropped 1% (Bristol-Myers Squibb Co. (TICKER:BMY)%c2%a0will%20report%20ahead%20of%20the%20bell%20on%20Monday.) and the ICE U.S. Dollar Index was edging south, largely driven by weakness against the Japanese yen .

Digital currencies continued their recent retreat (http://www.marketwatch.com/story/bitcoin-drops-below-8000-after-another-bank-ban-on-credit-card-buying-hits-2018-02-05), and bitcoin fell below $8,000, trading at levels last seen in November. The world's largest cryptocurrency has lost more than half its value since a high reached in December.

 

(END) Dow Jones Newswires

February 05, 2018 09:58 ET (14:58 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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