US stocks stumble on worries over rate hikes, earnings

Major US indices dropped more than one percent, with the Dow shedding 1.7 percent for its fifth straight decline after a mid-session selloff. European stocks were mixed while Asian markets rose.

"Right now, if you look at what was driving the market for the last year or two, it was relatively high growth and a low-rate environment and a low-inflation environment, and it looks like all three of those are starting to come into question," said Shawn Cruz, manager of trader strategy at TD Ameritrade.

US stocks opened the session mildly positive, but began falling soon after the yield on the 10-year US Treasury bond hit 3.0 percent for the first time in more than four years.

The move came as commodity prices have strengthened and follows Congress' enactment in December of a sweeping tax cut supported by President Donald Trump aimed at speeding US growth.

The Federal Reserve has been gradually raising interest rates amid an improving US economy and expectations for steeper inflation. Investors fear that higher yields are a signal the central bank will need to hike interest rates more quickly than currently expected.

A more aggressive timetable for rate increases would mean higher lending costs for businesses and could prompt investors to shift funds from the equity market to bonds.

'High-water mark'?

Adding to the downward trend were some ugly moves lower by prominent companies following earnings, including Google-parent Alphabet, which sank 4.5 percent on worries about higher costs even as quarterly earnings soared more than 70 percent to $9.4 billion.

Alphabet's woes appeared to rub off on other large technology shares, with Amazon falling 3.8 percent, Facebook losing 3.7 percent and Microsoft 2.3 percent. All three companies report results later this week.

"Earnings are good but not great," said Phil Davis of PSW Investments. "It's impossible to live up to the expectations."

In the Dow, Caterpillar shares sank 6.2 percent after a conference call in which chief financial officer Bradley Halverson signaled the company's first quarter would be its "high-water mark" for 2018, denting hopes of higher profits down the road. Executives also confirmed that prices of steel and other materials would be a headwind all year, lending further weight to analyst fears about inflation.

The decline was a big reversal for Caterpillar, which had opened the session sharply higher after scoring a huge jump in first-quarter profits and upgrading its full-year forecast.

3M was another big loser in the Dow, falling 6.8 percent after it lowered its full-year forecast and disclosed an $897 million charge connected to settling a lawsuit with the state of Minnesota over release of chemicals that allegedly polluted drinking water.

Analysts have been gearing up for a strong first-quarter earnings period, but there is rising anxiety about whether there is a downside to that bounty.

"There is now more discussion that first quarter earnings growth, likely to represent record strength, will mark the peak for the current business cycle," said Karl Haeling, head of capital market sales at LBBW.

Key figures around 2100 GMT

New York - Dow: DOWN 1.7 percent at 24,024.13 (close)

New York - S&P 500: DOWN 1.3 percent at 2,634.45 (close)

New York - Nasdaq: DOWN 1.7 percent at 7,007.35 (close)

London - FTSE 100: UP 0.4 percent at 7,425.40 (close)

Frankfurt - DAX 30: DOWN 0.2 percent at 12,550.82 (close)

Paris - CAC 40: UP 0.1 percent at 5,444.16 (close)

EURO STOXX 50: DOWN 0.2 percent at 3,506.96 (close)

Tokyo - Nikkei 225: UP 0.9 percent at 22,278.12 (close)

Hong Kong - Hang Seng: UP 1.3 percent at 30,636.24 (close)

Shanghai - Composite: UP 2.0 percent at 3,128.93 (close)

Euro/dollar: UP at $1.2235 from $1.2209 at 2100 GMT

Dollar/yen: UP at 108.78 yen from 108.71

Pound/dollar: UP at $1.3979 from $1.3940

Oil - Brent North Sea: DOWN 85 cents at $73.86 per barrel

Oil - West Texas Intermediate: DOWN 94 cents at $67.70 per barrel