U.S. stocks sink into close after tech rout
A final-hour selloff in tech shares sent U.S. stocks to a second straight loss, while Treasuries retreated following President Joe Biden’s nomination of Jerome Powell to head the Federal Reserve for a second term. The dollar climbed.
The S&P 500 turned lower in the final hour of trading, while the Nasdaq 100 dropped more than 1 percent. The broader index had spent all of the session higher before a sell-off in tech shares popular among hedge funds dragged it lower for the day. Peloton and Docusign slid at least 5.5 percent. Farfetch and Snowflake drove a basket of software and internet companies that have yet to earn any money down more than 5 percent.
“I don’t know why the tape collapsed late, but the market has rallied so much, so quickly, a retracement has to happen at some point. This could be the start,” said Mike Zigmont, head of trading and research at Harvest Volatility Management.
The Powell nomination had dominated market sentiment for much of the day before the big about-face in equities. The yield on two-year bonds jumped toward 0.6 percent. The U.S. swaps market is now pricing a full 25 basis point rate hike into the June Fed meeting, with a second increase seen for next November. The dollar climbed, while gold slumped more than 2 percent and oil gained.
Biden had been considering between Powell and Lael Brainard, whom he nominated to move up to vice chair. The Powell choice comes amid growing concern the U.S. central bank may fall behind the curve in combating sticky inflation. Consumer-price growth is surging at the fastest pace in decades and expectations for price growth are at the highest since 2013.
“The whole point is it doesn’t change anything — the same issues are on his plate now, which is are they going to be right that the pop in inflation is going to be transitory and if not, what do they do about it?” David Donabedian, chief investment officer of CIBC Private Wealth Management, said by phone. “The choice about Powell’s renomination is all about continuity.”
Shares got a lift overnight from a flurry of potential deals. Vonage jumped more than 20 percent as Ericsson agreed to buy it. Telecom Italia surged 30 percent in Europe after KKR & Co. bid for it.
U.S. stocks are trading near record levels, outpacing the rest of the world, as investors see few alternatives amid rising inflation and a persistent pandemic that undermines global recovery. Concerns about high valuations and the potential for the economy to run too hot on the back of loose monetary and fiscal policies have interrupted, but not stopped, the rally.