US open: Stocks slump as bond yields rise further, healthcare sector weighs

US equity markets were sharply lower in early trade on Tuesday, resuming the selloff from the previous session amid rising bond yields, with healthcare stocks under pressure.

At 1530 GMT, the Dow Jones Industrial Average was down 1% to 26,185.84, the S&P 500 was 0.8% lower at 2,831.55 and the Nasdaq was off 0.7% to 7,412.06.

The healthcare sector suffered some of the heaviest losses after Amazon, Berkshire Hathaway and JPMorgan Chase said they would partner up in an effort to cut healthcare costs and improve services for US employees.

Meanwhile, yields on the 10-year US Treasury continued to edge higher, rising to 2.71%, having breached 2.7% for the first time since April 2014 on Monday.

Investors were looking ahead to a State of the Union address by President Trump and keeping an eye on the first day of the Federal Reserve’s two-day rate-setting meeting, particularly as the move higher in bond yields has been attributed to expectations that US policymakers could revise their US economy forecasts higher in light of the recent tax changes brought in by the Trump administration.

Spreadex analyst Connor Campbell said: “The Dow Jones plunged a stomach-churning 300 points after the bell, hitting an eight-day low of just under 26,150 as investors stared down the barrel of an incredibly hectic rest of the week. There’s the unknown of this evening’s State of the Union address from Donald Trump; the first Fed meeting of the year on Wednesday, with rising bond yields suggesting something hawkish; and a non-farm Friday that may become even more important than normal dependant on what the central bank say mid-week.

“Interestingly the dollar, which had been mounting something of a comeback as recent as this morning, completely gave up the ghost this Tuesday afternoon. Having at one point fallen below $1.40, cable jumped 0.4% to re-cross $1.41, while against the euro the greenback shed 0.3%, allowing the single currency back above $1.24.”

In corporate news, healthcare group Aetna fell despite posting a 75% surge in quarterly profit, while pharmaceutical company Pfizer was also weaker even after its fourth-quarter earnings surpassed expectations and its revenue forecasts for 2018 came in ahead of estimates.

Harley-Davidson slumped after it said that 2017 shipments were at the low end of expectations, while McDonald’s nudged lower despite its quarterly earnings and sales beating forecasts.

Still to come later this week, earnings are due from Apple, Alphabet and Amazon.

The latest data from the Conference Board was a bright spot on Tuesday, showing that US consumer confidence rose in January following a drop the month before and helping the Dow to trim some of its losses.

The Conference Board’s consumer confidence index rose to 125.4 from December’s reading of 123.1, which was revised up from 122.1 previously. Analysts had been expecting a reading of 123.0.

The present situation index fell slightly to 155.3 from 156.5, while the expectations index rose to 105.5 this month from 100.8 in December.

Lynn Franco, director of economic indicators at the Conference Board, said: “Consumer confidence improved in January after declining in December. Consumers’ assessment of current conditions decreased slightly, but remains at historically strong levels. Expectations improved, though consumers were somewhat ambivalent about their income prospects over the coming months, perhaps the result of some uncertainty regarding the impact of the tax plan.

“Overall, however, consumers remain quite confident that the solid pace of growth seen in late 2017 will continue into 2018.”

Elsewhere, US house price growth was as expected in November, according to the S&P/Case-Shiller National Home Price Index.

The 20-city index rose 6.4% on the year, up from 6.3% growth the previous month and in line with economists’ expectations.

Meanwhile, the national home price NSA index covering all nine US census divisions was up 6.2% on the year, compared to a 6.1% increase the month before.

Seattle, Las Vegas, and San Francisco reported the highest year-over-year gains among the 20 cities. Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.6% rise and San Francisco with a 9.1% increase.