Steep losses in technology shares dragged down the S&P 500 on Monday as a continuous rise in bond yields dented the appetite for growth stocks. Meanwhile, investors piled into economically sensitive names to bet on a comeback.
The broad equity benchmark lost 0.8% to 3,876.50 in volatile trading, falling for a fifth straight session amid the weakness in tech and consumer discretionary. The Nasdaq Composite fell 2.5% to 13,533.05 as Tesla shares slid 8.6%. Big Tech stocks came under pressure with Apple, Amazon and Microsoft all dropping at least 2%.
The Dow Jones Industrial Average reversed a 200-point loss to close 27.37 points higher, or 0.1%, at 31,521.69. A handful of economic comeback plays boosted the blue-chip benchmark. Disney jumped 4.4%, while industrial giant Caterpillar and chemicals company Dow Inc. both climbed more than 3.5%. American Express and Chevron gained 3.2% and 2.7%, respectively.
Some equity investors grew concerned about rapidly rising Treasury yields in recent weeks as they could especially hurt high-growth companies reliant on easy borrowing while diminishing the relative appeal of stocks. These same tech stocks also thrived during the pandemic, so some investors may be taking profits and rotating into names that will do well in a recovery.
The 10-year Treasury yield rose again on Monday to around 1.35% after jumping 14 basis points last week to its highest level since February 2020. So far this month, the benchmark rate has moved up 27 basis points. The 30-year yield touched a one-year high of 2.2% Monday. A basis point is 0.01%.
All eyes will be on Federal Reserve Chairman Jerome Powell, who delivers his semi-annual testimony on the economy before the Senate Banking Committee on Tuesday. His comments on rates and inflation could determine the market direction for the week.
On Monday, European Central Bank President Christine Lagarde said in a speech that the central bank is “closely monitoring the evolution of long-term nominal bond yields.” European sovereign bonds yields moved lower in response to her remarks.
Many on Wall Street still believe that the jump in bond yields reflects a sign of growing confidence in the economic recovery and stocks should be able to absorb higher rates amid strong earnings.
Reference: CNBC
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