After Their Best Performance Since June, Stock ETFs Slip on Tuesday

After a strong start to March, stocks and index ETFs slipped on Tuesday, as tech stocks dragged down the market.

The Dow Jones Industrial Average lost 100 points earlier in the session, but has since rebounded to tread water around breakeven. Meanwhile, after rallying 2% Monday for its strongest performance since June, the S&P 500 dropped 0.6% Tuesday, and the Nasdaq Composite fell 1%.

Major stock ETFs are struggling on Tuesday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all lower just after 12:45 PM EST.

Tech and real estate were the two worst-performing sectors, falling more than 1% each, with losses seen in related ETFs like the Vanguard Information Technology ETF (VGT) and the iShares U.S. Real Estate ETF (IYR).

While there has been significant concern around rising interest rates and inflation, as they tend to affect technology stocks and borrowing costs, the 10-year Treasury yield dipped to 1.41% Tuesday, assuaging investor fears somewhat. The benchmark rate appeared to be balancing out this week after spiking to a high of 1.6% last week, although investors and traders will likely remain vigilant in observing rates.

“Volatility has resurfaced as rising interest rates begin to change the dynamic with valuations and expectations for future inflation,” Craig Johnson, technical market strategist at Piper Sandler, said in a note. “While another round of stimulus should support the continuation of the economic recovery, it does also create increase risk of stoking inflation and changing the FOMC’s dovish narrative.”

The Best Day for Indices in Recent Memory

Monday, the first day of March, was a big day for stock ETFs, as investors drove the S&P 500 up 2.4%, while the Dow Jones Industrial Average gained almost 2% and the tech-heavy Nasdaq rallied more than 3% after tumbling 4.9% last week, helping the later two indices score their best days since November.

With the approval of the Johnson and Johnson vaccine this past weekend, investors are optimistic that an economic recovery could be closer than ever, as the Biden administration continues the effort to contain the spread of the coronavirus and its new variants.

Some financial pundits see the rise in bond yields as a sign of improving economic growth and increasing earnings forecasts, and that stocks should be able to weather broadening borrowing costs as long as the gain in yields is controlled.

“It’s not just the level of rates that matters for investors; it’s also the pace of the climb, the steepness of the curve, and the reasons for movement,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

“Investors should expect moments of market indigestion as good news slows, but stick with the fundamentals: accommodative policy and improving earnings are good news for risk assets,” she added.

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