Stocks and index ETFs dropped again on Monday as rising bond yields stymied desires for riskier assets like growth technology stocks.
The Dow Jones Industrial Average fell overnight in futures trading and is attempting to tread into positive waters Monday, as the S&P 500 remains down on the day 0.5%, falling for a fifth consecutive session amid severe losses in tech and consumer discretionary. The tech losses have are also plaguing the Nasdaq Composite, which is still down 1.6%.
Major stock ETFs are mainly lower on Monday too. The SPDR Dow Jones Industrial Average ETF (DIA) is flat to slightly lower, while the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF Trust (SPY) are both lower just after noon EST.
Spiking Treasury yields are irking investors as they fear the rise could affect high-growth companies that count on the bonds for easy borrowing. These yields also limit the desire for risk appetite and stocks.
Key stocks and ETFs like the Vanguard Information Technology ETF (VGT) are falling, as Apple, Amazon, Microsoft, Netflix, and Alphabet all traded at least 1% lower. Meanwhile, energy ETFs like the United States Oil Fund (USO) are climbing as crude oil continues to push higher.
Treasury Yields Moving Upwards
The 10-year Treasury yield surged 14 basis points last week to 1.34%, near its highest level since February 2020. The benchmark yield reached a high of 1.37% before flattening out, making for a collective pop of 25 basis points in February.
“This move in yields should be something that investors keep a close eye on,” Matt Maley, chief market strategist at Miller Tabak, said in a note. “Just because long-term rates are ultra-low on an historical basis, we do not believe that they will have to rise as far as most pundits think they do…before they impact the stock market.”
Investors are eagerly awaiting feedback and potentially market direction from Federal Reserve Chairman Jerome Powell, who will offer his semi-annual testimony on the economy before the Senate Banking Committee tomorrow. Powell could lend insight on interest rates and inflation.
Meanwhile, 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,” helping to drive yields lower.
Some experts believe that developments like the vaccine program and a gradual reopening of the economy are causing a spike in bond yields, as the moves may signal a rising confidence in the economic recovery, as well as evidence that stocks should be able to handle higher interest rates amid healthy earnings.
“We do not see the recent increase in yields as a threat to the bull market,” Keith Lerner, chief market strategist at Truist, said in a note. “Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities.”
The White House said that it plans to ship out millions of delayed coronavirus vaccine doses this week after a delay from a massive winter storm upended supply chain logistics.
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