Tech rout hands Nasdaq biggest loss in months

Rising bond yields triggered a broad selloff on Wall Street Thursday that erased the market’s gains for the week and handed the Nasdaq composite its biggest loss in nearly four months.

The S&P 500 dropped 2.4%, led lower by heavy selling in technology and communications companies. The tech-heavy Nasdaq fell 3.5%, its biggest skid since October.

The sell-off took hold when the yield on the 10-year U.S. Treasury note rose to 1.53%, a level not seen in more than a year and far above the 0.92% level it was trading at only two months ago.

Bond yields have been rising this month, reflecting growing confidence among investors that the economy is on the path to recovery, but also concern that inflation is headed higher. And every tick up in bond yields recently has corresponded with a tick down in stock prices.

Thursday’s move in the 10-year Treasury yield raised the alarm on Wall Street that yields, and the interest rates they influence, will move higher from here.

“The yield on the 10-year note crossed the line in the sand at 1.50%, which from a technical perspective further confirms that higher rates are likely,” said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 index fell 96.09 points to 3,829.34. The Dow Jones Industrial Average lost 559.85 points, or 1.8%, to 31,402.01. The Nasdaq slid 478.54 points to 13,119.43.

The economy grew at an annual pace of 4.1% in the final three months of 2020,

slightly faster than first estimated. The influx of new government stimulus efforts and accelerated vaccine distribution could lift growth in the current quarter, ending in March, to 5% or even higher, economists believe.

“The bond market is reacting to the positive economic growth,” said Brent Schutte, chief investment strategist, Northwestern Mutual Wealth Management Company. “It means there’s some hope on the horizon.”

Technology stocks, which tend to have higher valuations, have been one of the victims of the rise in bond yields. As bond yields climb, more investors shift money into those higher yielding assets, which tends to negatively impact stocks that are priced for growth and not for regular dividend payouts.

Apple, Amazon, Facebook and Microsoft — which all pushed the market higher last year — fell 2.4% or more.

The market will likely see broader growth as actual economic growth widens to include many of the sectors that have been beaten down during the pandemic, Schutte said.

Smaller company stocks fared worse than the rest of the market. The Russell 2000 index of smaller company stocks lost 84.21 points, or 3.7%, to 2,200.17.