Stocks fall as bond yields hit three-month high; Dow Down 500 points

US stocks fell on Tuesday as rising bond yields deepened the rout in tech company stocks.

The S&P 500 fell 1.4%, heading for a second straight day of losses. The tech-rich Nasdaq Composite slipped 2.2%, while the Dow Jones Industrial Average lost 375 points, or 1.1%, to 34,494.

For much of the past decade, many investors have invested in stocks of fast-growing technology companies, betting they would generate relatively robust earnings growth, even in a sluggish economic environment. This week, this trade hit a roadblock.

With the economy emerging from the worst of the pandemic-fueled crisis, the Federal Reserve signaled last week that it could start canceling its pandemic stimulus packages as early as November and raise interest rates year round. next. This appears to have caused some of the market’s longest-lasting deals to unwind, pushing Treasury yields to their highest level in months and shutting investors out of popular tech stocks.

Investors agree that the economic outlook has improved significantly since 2020. But many wonder how much the market will be able to fend for itself once the Fed begins to cut back on its monthly asset purchases, especially since they attribute much of the market’s rebound to its pandemic low. to extraordinary levels of monetary and fiscal support from Washington. Some investors have also expressed concerns about the economic outlook. Inflation has made a surprising comeback this year, which some fear will start to squeeze corporate profit margins. The fast-spreading Delta variant of Covid-19 has also complicated efforts by economists to forecast the growth prospects for the global economy.

“People are realizing, or at least remembering, that central banks are going to have to start raising rates,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. “The patient has become accustomed to receiving all of these drugs, but soon these drugs are going to have to be reduced.”

Tuesday’s market sell-off was broad, pulling all sectors of the S&P 500 lower for the day except one.

Traders have taken money out of the tech industry. Actions of companies like Facebook,

Parent Alphabet of Google and Microsoft,

each of which had significantly outperformed the overall market this year, fell more than 2.5% each.

At the same time, selling pressure has accelerated in the government bond market. The benchmark 10-year Treasury bond yield looked set to rise for a sixth consecutive day on Tuesday, recently trading at 1.540%, from 1.482% on Monday. Bond yields rise as prices fall.

Stocks of energy companies avoided the sell-off.

Schlumberger added 3.4%, while Marathon Oil rose 1.7%. Both benefited from crude oil prices hitting multi-year highs this week, although oil ended up abandoning the day’s gains to end slightly lower on Tuesday. Policy makers attributed the spike to a combination of increased demand and supply shortages.

Rising commodity prices have heightened concerns among some investors about short-term inflationary pressures. Inflation tends to weigh on bond prices because it erodes the purchase value of their fixed payments.

Some investors say the recent setbacks in equities come as no surprise after a long period of relative calm. The S&P 500 has risen for seven consecutive months, its longest such streak since the 10 months through January 2018, according to Dow Jones Market Data.

The data suggests investors were heavily positioned on bets on lower interest rates and subdued inflation earlier this month, another factor that may have exacerbated the speed and magnitude of Tuesday’s pullback. In a survey of global fund managers from September 3-9, Bank of America found that investors typically bet on rising stock prices and easing inflationary pressures.

“This is often the way it is – you have calm, complacent markets, then instinctive control,” said Keith Lerner, co-chief investment officer of Truist Advisory Services. Mr Lerner added that he is still optimistic about the longer-term market outlook.

Elsewhere, European markets collapsed, while Asian indices were mixed.

The pan-continental Stoxx Europe 600 fell 2.2% for its third consecutive session of losses.

Hong Kong’s Hang Seng Index rose 1.2% after signs of support from China’s central bank helped boost declining shares of Chinese real estate developers. The People’s Bank of China said on Monday evening that it “will maintain the healthy development of the real estate market and protect the legitimate rights and interests of home buyers.”

Country Garden Holdings shares,

China Vanke and China Overseas Land and Investment all jumped between 5% and 6%. China Evergrande Group,

the struggling real estate giant, which fell behind on a payment to international bond holders, rose more than 4%. Sunac China Holdings jumped nearly 15%, posting two days of steep decline, after the real estate company played down a leaked plea for help from a local government and said sales were good.

Meanwhile, the Nikkei Stock Average ended down 0.2%.

Rising bond yields attracted investors to the US dollar, which strengthened against major currencies, from the euro to the Swiss franc. The WSJ Dollar Index, which tracks the currency against a basket of other currencies, rose 0.4% and is trading around a five-week high.

Some investors are recalibrating their portfolios to prepare for the gradual end of ultra-accommodative monetary policies.


Photo:

Brendan Mcdermid / Reuters

—Xie Yu and Frances Yoon contributed to this article.

Write to Akane Otani at [email protected] and Will Horner at [email protected]

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