Market Update: Dow Jones Sinks 400 Points as Government Bond Yields Top 3%

U.S. stocks plunged on Tuesday, with the Dow Jones Industrial Average sinking more than 400 points as rising government bond yields drove investors into risk-off mode.

Stocks Plunge

The Dow blue-chip index plunged 424.56 points, or 1.7%, to close at 24,024.13. That marked the fifth consecutive decline and the lowest settlement in almost three weeks.

Twenty-four of 30 index members recorded losses, with Caterpillar Inc. (CAT) and 3M Co (MMM) falling more than 6% apiece.

Caterpillar reported first-quarter earnings that were well above expectations but indicated that economic growth will slow for the remainder of the year.

The broader S&P 500 Index closed down 1.3% at 2,634.56, with nine of 11 sectors reporting declines. Industrials plunged 2.8%; while materials declined 2.6%. Heavy losses were also reported for IT, consumer discretionary and energy stocks.

The technology-heavy Nasdaq Composite Index declined 1.7% to 7,007.35.

A measure of implied volatility known as the CBOE VIX surged more than 10% on Tuesday to settle at 18.02. The so-called “fear index” trades on a scale of 1-100, with readings below 20 usually indicating calmer conditions for Wall Street. Despite its current reading, the VIX has been anything but calm in recent months, having reached a high above 50 in early February.

Interest Rates Rise

A sharp rise in government bond yields has been one of the major catalysts for the recent downturn in the market. The yield on 10-year U.S. Treasury notes climbed above 3% on Tuesday for the first time since early 2014.

Investors have been selling Treasurys throughout April – pushing the yield higher – amid expectations of tighter monetary policy from the Federal Reserve. Policymakers are said to be eyeing at least two more interest rate hikes this year to combat rising inflation.

The pressure from inflation will likely strengthen due to tax cuts and infrastructure spending. The Fed targets consumer price growth at 2% annually and uses a measure called the core PCE index to evaluate inflationary trends. The core PCE index strengthened to 1.6% in March, the biggest gain since February 2017.

Cryptocurrency Rally Accelerates

The cryptocurrency market shifted into high gear on Tuesday, with bitcoin and the broader altcoin universe adding $35 billion. At the time of writing, the cryptocurrency market was worth a combined $433.4 billion, according to CoinMarketCap. That’s the highest level since early March.

Bitcoin’s value continued to rise, but its overall share of the market fell to around 37%. BTC rose more than 6% to $9,463, bringing its total market cap to $160.8 billion.

Ethereum added more than 10% to $705. Ripple XRP gained 7.5% to $0.937. Bitcoin cash also extended its winning streak, rising 5.4% to $1,466.

Double-digit gainers included EOS, which surged more than 37% to $15.85, and Cardano, which added 10.5% to $0.316.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi