Financial Markets                      04/15 16:13

   

   NEW YORK (AP) -- U.S. stocks slumped Monday after higher yields in the bond 
market caused by a strong U.S. economy cranked up the pressure on Wall Street.

   The S&P 500 tumbled 1.2%, following up on its 1.6% loss from last week, 
which was its worst since October. The Dow Jones Industrial Average dropped 248 
points, or 0.7%, and the Nasdaq composite slumped 1.8%.

   Stocks had been solidly higher earlier in the day, as oil prices eased with 
hopes that international efforts to calm escalating tensions in the Middle East 
may help. But Treasury yields also spurted upward following the latest report 
on the U.S. economy to blow past expectations.

   The economy and financial markets are in an awkward phase where such 
strength raises hopes for growing profits at companies but also hurts prospects 
for easier interest rates from the Federal Reserve. They're the two main levers 
that set stock prices, and they're simultaneously yanking Wall Street in 
different directions.

   Traders want lower interest rates, which can give the overall economy a 
boost, and much of the U.S. stock market's run to records recently was built on 
expectations for cuts.

   But strong reports like Monday's, which showed U.S. shoppers increased their 
spending at retailers last month by more than expected, have traders broadly 
forecasting just one or two cuts to rates this year, according to data from CME 
Group. That's down from expectations for six or more cuts at the start of this 
year. Some traders are bracing for potentially no cuts because inflation and 
the overall economy have remained stubbornly above forecasts this year.

   High interest rates and bond yields hurt prices for all kinds of 
investments, particularly those that look expensive or those that compete for 
the same kinds of investors as bonds do.

   As a result, real-estate investment trusts fell to some of Monday's sharpest 
losses in the stock market. When bonds are paying higher yields, they peel away 
investors who might otherwise be interested in the relatively big dividends 
that real-estate stocks pay. High rates can also pressure real estate prices 
broadly.

   Office owner Boston Properties fell 3.2%, for example.

   More influential was weakness for Big Tech stocks. Apple dropped 2.2%, 
Nvidia fell 2.5% and Microsoft sank 2%. They've been past beneficiaries of low 
interest rates and often feel pressure when yields are rising. Because they're 
also the largest stocks on Wall Street, their movements carry extra weight on 
the S&P 500 and other indexes.

   Microsoft, for example, swung from an early gain of 1.2% to its loss in the 
afternoon and was the second-largest force weighing on the S&P 500.

   Helping to keep the losses in check were some financial companies that 
reported encouraging earnings for the start of the year. The pressure is on 
companies broadly to deliver fatter profits because interest rates looks so 
much less likely to offer support in the near term.

   Goldman Sachs rose 2.9% following its report.

   M&T Bank climbed 4.7% after reporting profit for the first quarter that was 
slightly above analysts' expectations. It also said it slightly shrunk the 
amount of pain that it would take if the pressured commercial real-estate 
industry sinks sharply.

   Charles Schwab rose 1.7% after also edging past analysts' forecasts for its 
profit last quarter.

   All told, the S&P 500 fell 61.59 points to 5,061.82. The Dow dropped 248.13 
to 37,735.11, and the Nasdaq composite sank 290.08 to 15,885.02.

   In the oil market, a barrel of U.S. crude for May delivery fell 25 cents to 
$85.41 as political leaders urged Israel not to retaliate after Iran's attack 
on Saturday involving hundreds of drones, ballistic missiles and cruise 
missiles. Brent crude, the international standard, eased 35 cents to $90.10 per 
barrel.

   Financial markets had been nervous heading into the weekend. The worry was 
that an attack by Iran could widen Israel's war with Hamas and ultimately 
constrict the flow of crude oil. But Israel said 99% of the drones and missiles 
were intercepted as diplomats urged a de-escalation and the U.S. administration 
made clear it did not support a wider war with Iran.

   This year's jump in oil prices has been raising worries about a knock-on 
effect on inflation, which has remained stubbornly high. After cooling solidly 
last year, inflation has consistently come in above forecasts in each month so 
far of 2024.

   "If inflation is sticky because of momentum in the economy, that's not 
necessarily bad for stocks," Bank of America strategists led by Ohsung Kwon 
wrote in a BofA Global Research report. "But stagflation is," referring to the 
painful combination of a stagnating economy and high inflation.

   Strategists at Wells Fargo Investment Institute raised their forecast for 
where the S&P 500 could end this year in part because of the surprising 
strength of the U.S. economy. While they expect stock prices to be choppy 
following big gains since October, they say a growing U.S. economy should drive 
sales for companies.

   In the bond market, the yield on the 10-year Treasury rose to 4.61% from 
4.52% late Friday.

   ___

   AP Writers Matt Ott and Zimo Zhong contributed.

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