Wall Street stocks down close to 2-weeks’ low as 10-year yields reach the 3.00% level

Stellar earnings are not impressing investors who wonder if the earnings can be sustained over time.
Higher yields, rising interest rates and commodities weigh on companies.

The S&P 500 Index dropped 1.30% to 2,634.56. The Dow Jones Industrial Average dropped 424.56 points or 1.74% and closed at 24,024.13. The Nasdaq composite declined 1.70% to 7007.35 as, Alphabet, Netflix, Amazon and Facebook dropped more than 4 %.

Caterpillar saw its earnings beat analysts expectations and the stock traded higher at the start of the day. However, Caterpillar CFO In a conference-call said that the first quarter would be the "the high watermark for the year," and the stock tanked 6.8% on the day. Caterpillar stock has a 0.81% correlation with the Dow Jones and therefore the company is seen as a barometer for the health of the economy as a whole.

Meanwhile, 3M reported its quarterly earnings but lowered its full-year profit forecast and the stock plummeted 6.86% on the day. Alphabet, Google parent company also beat expectations but the stock fell 5%.

Companies are reporting stellar earnings but stocks get dumped. The reason is that earnings reflect the company’s statistics in the past. Most companies, however, got a boost from tax cuts but eventually, the effect will subside over the coming months and the market is factoring that in. The market can see the earnings go higher in 2018 but 2019 seem far-fetched for some market participants.

Additionally, higher rates and commodity prices are starting to weigh on companies which see their input costs rising. The 10-year Treasury yields reached 3.003% on Tuesday which is its highest point since 2014. The bull run in yield is driven by the expectation that the Federal Reserve Bank will raise interest rates three to four times this year; along with the fiscal policy boost.

"Investors have high expectations for earnings. At the same time, a lot of people are asking: Does it get better from here? I think that's why we're seeing such shifts in the market," said Kate Warne, investment strategist at Edward Jones.

S&P 500 Index daily chart

Immediate support is seen at 2,600 demand level and 2,551.75 cyclical low. Resistance is seen at 2,718.75 and 2,800 swing high.

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