Bond Spike Spooks US Stocks Tuesday 09/28 16:01
Technology companies led a broad slide in stocks on Wall Street Tuesday,
deepening the market's September swoon. The selling came as a swift rise in
Treasury yields forces investors to reassess whether prices have run too high
(AP) -- Technology companies led a broad slide in stocks on Wall Street
Tuesday, deepening the market's September swoon.
The S&P 500 fell 2%, its worst drop since May. The tech-heavy Nasdaq dropped
2.8%, its biggest drop since March. Decliners outnumbered advancers on the New
York Stock Exchange 4 to 1.
The benchmark S&P 500 is down 3.8% so far this month and on pace for its
first monthly loss since January. The September slump has been an exception to
a mostly steady stream of gains so far this year that has brought the S&P 500
up 15.9% since the beginning of 2021.
The selling came as a swift rise in Treasury yields forces investors to
reassess whether prices have run too high for stocks, particularly the most
popular ones. The yield on the 10-year Treasury note, a benchmark for many
kinds of loans including mortgages, jumped to 1.54%. That's its highest level
since late June and up from 1.32% a week ago.
Bond yields started rising last week after the Federal Reserve sent the
clearest signals yet that the central bank is moving closer to begin
withdrawing the unprecedented support it has provided for the economy
throughout the pandemic. The Fed indicated it may start raising its benchmark
interest rate sometime next year and will likely begin cutting back the pace of
its monthly bond purchases before the end of this year.
"All of that is taking one of the weights that had been holding yields low
and removing it," said Sameer Samana, senior global market strategist at Wells
Fargo Investment Institute. "That clearly has a big impact on larger cap,
higher growth, higher multiple stocks."
A rise in yields means Treasuries are paying more in interest, and that
gives investors less incentive to pay high prices for stocks and other things
that are riskier bets than super-safe U.S. government bonds. The recent upturn
in rates has hit tech stocks particularly hard because their prices look more
expensive than much of the rest of the market, relative to how much profit
Many tech stocks also got bid up recently on expectations for big profit
growth far in the future. When interest rates are low, an investor isn't losing
out on much by paying high prices for the stock and waiting years for the
growth to happen. But when Treasuries are paying more in the meantime,
investors are less willing.
The S&P 500 fell 90.48 points to 4,352.63. The Dow Jones Industrial Average
fell 569.38 points, or 1.6%, to 34,299.99. The blue-chip index briefly fell 614
Small company stocks also lost ground. The Russell 2000 index dropped 51.23
points, or 2.2%, to 2,229.78.
This week's swoon for the market is reminiscent of an episode early this
year when expectations for rising inflation and a stronger economy sent
Treasury yields climbing sharply. The 10-year yield jumped to nearly 1.75% in
March after starting the year around 0.90%. Tech stocks also took the brunt of
Chipmaker Nvidia fell 4.4%, Apple slid 2.4% and Microsoft fell 3.6%. The
broader technology sector has also been contending with a global chip and parts
shortage because of the virus pandemic and that could get more severe as a
power crunch in some parts of China shuts down factories.
Communications companies also weighed down the market. Facebook and Google's
parent company, Alphabet, each fell 3.7%.
Energy was the only sector in the S&P 500 that wasn't in the red. Exxon
Mobil rose 1% and Schlumberger gained 2.4% for the biggest gain among S&P 500
Another lingering market worry resonating from China is the possible
collapse of one of China's biggest real estate developers. Evergrande Group is
struggling to avoid a default on billions of dollars of debt.
Markets in Asia were mixed while markets in Europe fell.
Investors have been dealing with a choppy market in September as they try to
gauge how the economic recovery will progress and how it will impact various
COVID-19 remains a lingering threat and is still taking its toll on
businesses and consumers. Economic data on consumer spending and the employment
market has been mixed. U.S. consumer confidence declined for the third straight
month in September, according to a report from The Conference Board.
Companies are warning that supply chain problems and higher prices could
crimp sales and profits. The Federal Reserve has maintained that rising
inflation is temporary and tied to those supply chain problems as the economy
recovers from the pandemic. Investors are still concerned that higher inflation
could be more permanent and rising bond yields reflect some of those worries.
"The bottom line is that the supply chain thesis is really being tested and
the Fed, businesses and consumers have had to react to some of the
on-the-ground realities," said, Eric Freedman, chief investment officer at U.S.
Bank Wealth Management.