Roundup: U.S. equities plunge on interest rate concerns, mixed earnings

NEW YORK, Feb. 2 (Xinhua) -- Major U.S. stock indices posted their worst one-day performance in years on Friday as investors grew more concerned about rising interest rates while digesting mixed quarterly corporate earnings reports.

The Dow Jones industrial average plunged 665.75 points, or 2.54 percent to close at 25,520.96, the worst day since June 2016. The S&P 500 fell 2.12 percent to finish at 2,762.13, the biggest one-day fall since September 2016. The Nasdaq Composite dropped 1.96 percent to close at 7,240.95, the worst single-day performance since August 2017.

Analysts said interest rates were the top story for Friday's market.

Total nonfarm payroll employment increased by 200,000 in January, and the unemployment rate stayed unchanged at 4.1 percent, stronger than market expectations, the U.S. Bureau of Labor Statistics said Friday.

Average hourly earnings posted a 0.3 percent gain for the month and an annualized gain of 2.9 percent.

The data sent interest rates higher. The 10-year Treasury yield jumped to as high as 2.85 percent, a four-year high, putting pressure on the stocks. The 30-year yield rose its highest level since March.

Rising bond yields are traditionally seen as bad for stocks as it means large companies will have to spend more to finance their debts as interest rates increase.

With a strong jobs report, the market has turned its attention to the number of possible Federal Reserve (Fed) rate hikes in 2018.

Bank of America Merrill Lynch said Friday that the employment report checks all the boxes for the Fed: a good combination of strong growth and price data.

"Employment activity continues to trend higher, signaling further expansion of the economy and the better wage trajectory should give them more confidence that inflation will gradually pick up this year," said the bank in a report.

"At the moment, a March rate hike is all but a lock with markets placing over 90 percent probability. As long as financial conditions remain benign and there is no material change in the trend in the data, March rate hike looks to be a go," the report added.

The Fed on Wednesday left its benchmark interest rate unchanged at 1.25 to 1.5 percent after its two-day meeting, while giving an upbeat assessment of recent U.S. economic growth.

"Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low," the Fed's policy-making committee said in a statement.

The Fed also expected U.S. inflation on a 12-month basis to "move up this year and to stabilize" around the central bank's 2 percent target over the medium term.

Analysts said the market is now thinking about the possibility of the Fed raising interest rates four times this year.

CORPORATE EARNINGS MIXED

In the meantime, mixed corporate earnings reports also weighed on the major indices.

Exxon Mobil reported fourth-quarter earnings of 88 U.S. cents per share, excluding the impacts of the U.S. tax reform and impairments, falling far short of market expectations.

Shares of the oil giant dropped 5.1 percent to close at 84.53 dollars apiece.

The energy sector registered the worst performance among sectors Friday in S&P 500.

Apple on Thursday posted quarterly revenue of 88.3 billion dollars, an increase of 13 percent from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of 3.89 dollars, up 16 percent, also an all-time record.

However, the company reported weaker-than-expected iPhone unit sales and gave a lower-than-expected revenue forecast.

Shares of Apple plunged 4.34 percent to close at 160.50 dollars apiece.

Google parent company Alphabet reported quarterly earnings per share that missed Wall Street expectations. Shares of Alphabet dropped 5.28 percent to close at 1,119.20 dollars apiece on Friday.

The losses by Apple and Alphabet offset gains by Amazon. The company reported quarterly revenue of 60.5 billion dollars, higher than market estimates. Shares of Amazon rose 2.87 percent to close at 1,429.95 dollars apiece.

Of the S&P 500 companies that have reported as of Friday morning, 78 percent have beaten bottom-line expectations, while 80 percent have surpassed sales estimates, according to Thomson Reuters.

Wall Street has been talking about a correction in 2018, and some feared Friday's plunge could well be the start. However experts said it might not be time yet to worry about U.S. equities.

Mike Wilson, Chief U.S. Equity Strategist and Chief Investment Officer of Morgan Stanley Institutional Securities and Morgan Stanley Wealth Management, said Friday that the earnings story has been spectacular, with a steady and upward trajectory.

"Our call this year is that the S&P 500 can trade to 3,000 at the first half of this year, ultimately we will trade lower at the end of this year, about 2,750, as earnings multiplies come down," Wilson said.

Analysts at major investment banks have said that yields have more room to run higher and will seriously affect the stock market if only the U.S. 10-year Treasury breaks above 3 percent.

"We do not expect a substitution effect favoring bonds to kick in over the near term," said Humberto Garcia, head of Global Asset Allocation for Bank Leumi USA.

"The equity market's momentum, buttressed by the recent passage of business friendly tax reform and the resulting boost to corporate earnings, should overcome the gradual increase in the U.S. Fed funds rate," he added. Enditem