Stocks and ETFs have relinquished major gains made in the previous session, as spiking bond yields continue to cause problems for high-growth technology stocks.
The Dow Jones Industrial Average dropped 410 points after closing at a record high in the previous session, losing more than 1.3%. The S&P 500 meanwhile slid 1.9%, while the Nasdaq Composite tumbled 2.8%. Key tech companies like Alphabet, Apple, and Microsoft all lost over 2%. Tesla dropped another 7%.
Major stock ETFs are falling on Thursday as well. The SPDR Dow Jones Industrial Average ETF (DIA) is eating into yesterday’s gains, while the Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF Trust (SPY) are both broadly lower just before 1 PM EST.
The 10-year Treasury yield crested 1.49% Thursday, to reach its loftiest level since last February. With the spike in yields, the benchmark rate has now surpassed the S&P 500′s dividend yield, diminishing the attractive qualities of equities, which are already considered riskier assets. The move has also seen a drop in Treasury ETFs like the Vanguard Long-Term Treasury ETF (VGLT) and the iShares 10-20 Year Treasury Bond ETF(TLH).
“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.”
While Treasury yields continued to climb, investors considered sanguine economic data out Thursday that revealed that first-time jobless claims totaled 730,000 for the week ended Feb. 20. Economists polled by Down Jones had estimated a number closer to 845,000. In addition, durable goods orders increased by 3.4% in January, compared to a Dow Jones consensus of 1.0% growth.
The fall in stocks and index ETFs arrived after the Dow rallied 425 points to close at a record high on Wednesday, as the S&P 500 gained 1.1 and the Nasdaq Composite eliminated a 1.3% loss to close 1% higher.
Analysts see the moves as related to expectations for economic growth.
“It seems pretty clear to us that the move in rates has been driven by growing optimism about economic growth, and rates are finally ‘catching up’ to the bullish growth outlook in equities,” said David Lefkowitz, head of equities Americas at UBS Global Wealth Management. “So equity investors should not be overly concerned.”
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