U.S. Stocks Pressured by Rising Global Sovereign Bond Yields

The major U.S. equity indexes closed lower on Thursday, driven by rising global bond yields and another sell-off in technology stocks. Energy stocks were also a drag on the markets despite a better-than-expected government inventories report.

In the cash market, the benchmark S&P 500 Index settled at 2409.75, down 22.79 or -0.94%, the blue chip Dow Jones Industrial Average finished at 21320.04, down 158.13 or -0.74% and the tech-based NASDAQ Composite finished the session at 6092.62, down 58.24 or -0.95%.

The S&P 500 Index was pressured by a 1.8 percent drop in the energy sector.

The Dow was led lower by weakness in UnitedHealth, Walt Disney, 3M and Apple.

The NASDAQ Composite weakened in response to a sell-off in Technology Select Sector SPDR exchange-traded fund (XLK).  The ETF was pressured by weakness in Facebook, Tesla, Apple, Netflix and Google parent Alphabet.

Investors said most of the selling pressure was related to portfolio adjustments triggered by rising global sovereign bond yields. The 10-year German Bund yield cracked the 0.50 percent level for the first time since January 2016 and the benchmark U.S. 10-year Treasury yield climbed to 2.38 percent. Investors may be reallocating funds between stocks and bonds as they prepare for a rising interest rate environment.

In other news, Tesla shares fell 5.5 percent Thursday, sending shares down 20 percent from a recent high, putting the stock into bear market territory. Investors cited Tesla’s disappointing second-quarter delivery results as the reason behind the sell-off.

Economic News

In the U.S. on Thursday, a report from ADP and Moody’s Analytics showed the U.S. economy added 158,000 jobs last month, less than the 185,000 forecast. Traders often use this report to gauge the strength of Friday’s U.S. Non-Farm Payrolls report. This number suggests the pace of jobs creation may be slowing.

Weekly Unemployment Claims came in at 248,000, slightly higher than the expected 243,000. The IHS Markit Services PMI for June, which showed the strongest expansion in business activity since January. The ISM Nonmanufacturing Index rose to 57.4 in June, up from 56.9 in May.

Crude Oil

Crude oil prices rose on Thursday, but the market closed only marginally higher after giving back most of its earlier gains. The catalyst behind the move was a government report showing a larger-than-expected drop in crude oil and gasoline stocks.

According to the U.S. Energy Information Administration (EIA), U.S. crude stocks fell 6.3 million barrels, traders were looking for a draw of about 2.4 million barrels.

U.S. Gasoline stocks dropped 3.7 million barrels during the week-ending June 30. However, inventories still remain about 6 percent above seasonal averages.

Additionally, U.S. crude production in the Lower 48 states rose by 105,000 barrels a day after dipping to last week. Gasoline demand also remains relatively weak.