U.S. markets and stock exchange traded funds plunged Thursday, with the technology-heavy Nasdaq set for its worst day in four months, as investors pulled out in response to a spike in U.S. bond yields.
On Friday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 3.5%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was down 1.7%, and iShares Core S&P 500 ETF (NYSEArca: IVV) dropped 2.4%.
Yields on benchmark 10-year Treasury notes hit a one-year high of 1.53%, triggering a broad selloff on some of the high-flying growth stocks due to valuation concerns, Reuters reports.
“The concern is that we haven’t been in an environment of persistently rising inflation expectations so it creates this new dynamic for investors,” Max Gokhman, head of asset allocation at Pacific Life Fund Advisors, told Reuters. “The market is stretched, a lot of forward growth expectations have been baked in and that’s creating some of the excuse to blow up steam for some investors who were a little too bullish.”
On the other hand, the relatively cheaper segments of the market helped the overall market, with bank and energy stocks experiencing a lesser pullback than their growth counterparts.
“The market is jittery. The bond yields’ rising is putting equities, especially growth stocks, under pressure,” Sebastien Galy, a macro strategist at Nordea Asset Management, told the Wall Street Journal. “There is a bit of a risk reduction broadly.”
Meanwhile, the latest economic data revealed fewer Americans filed for new unemployment benefits last week amid a decline in Covid-19 cases.
Additionally, many remain optimistic about the next installment in U.S. stimulus and a quickening pace in coronavirus vaccinations.
Investors are now waiting on any new catalyst that can further support the broad market rally that has helped lift equities to record highs.
“In the beginning of February, the stimulus news was the driving force but now that it has been priced in, there is nothing on the distant horizon for equity investors to be excited about and there is a concern that upside is limited,” Mike Zigmont, head of trading and research at Harvest Volatility Management, told Reuters.
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