U.S. stocks fell sharply on Thursday as a surge in bond yields prompted investors to dump risk assets, especially high-flying technology stocks.
The Dow Jones Industrial Average fell 500 points after closing at a record high in the previous session. The S&P 500 lost 2%, while the tech-heavy Nasdaq Composite slid 3% as Alphabet, Apple and Microsoft all dipped more than 2%. Tesla dropped 7%.
The 10-year Treasury yield topped 1.49% Thursday, hitting its highest level since February 2020. The jump put the benchmark rate above the S&P 500’s dividend yield, reducing the relative appeal of equities, which are already considered riskier assets. Higher rates could also hit the growth-oriented technology sector especially hard as the group has relied on easy borrowing.
“U.S. stocks will continue to closely take [their] cue from the trajectory of Treasury yields,” said Edward Moya, senior market analyst at OANDA. “If the 10-year Treasury hits 1.50% this week, it will be difficult to remain bullish even with small cap stocks. The Nasdaq will continue to lead the slide lower, while some investors will prefer to continue the rotation back into REITs, consumer staples, financials, and utilities.”
Yields added to their advance even after Federal Reserve Chair Jerome Powell emphasized the central bank’s commitment to easy policy and downplayed the risk of inflation, saying it could take three years or more before the Fed’s goals are reached.
Investors shrugged off better-than-expected economic data out Thursday. First-time jobless claims totaled 730,000 for the week ended Feb. 20, versus a print of 845,000 expected by economists polled by Dow Jones. Meanwhile, durable goods orders increased by 3.4% in January, compared to a Dow Jones consensus of 1.0% growth.
“Our base case is that rates will continue to rise due to increasing growth and inflation expectations and, eventually, Federal Reserve normalization,” said Ryan Detrick, chief market strategist at LPL Financial. “We also believe if rates move too high too fast, the Fed will intervene to make sure rising rates don’t become too restrictive and disrupt equity markets or the real economy.”
GameStop, the controversial meme stock whose massive short squeeze shocked Wall Street last month, is on the rise again. Shares were up more than 60% in volatile trading after doubling in the previous session on the reported ousting of a chief executive.
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