Nasdaq off 3.5%, biggest loss since October

Rising bond yields triggered a broad sell-off Thursday on Wall Street 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 percent, led lower by heavy selling in technology and communications companies. The tech-heavy Nasdaq fell 3.5 percent, its biggest skid since October.

The sell-off took hold when the yield on the 10-year U.S. Treasury note moved above 1.5 percent, a level not seen in more than a year and far above the 0.92 percent it was trading at only two months ago. The move 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 percent, which from a technical perspective further confirms that higher rates are likely,” said Sam Stovall, chief investment strategist at CFRA.

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.

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 percent, to 31,402.01. The Nasdaq slid 478.54 points to 13,119.43.

The economy grew at an annual pace of 4.1 percent in the final three months of 2020. The influx of new government stimulus efforts and accelerated vaccine distribution could lift growth in the current quarter, ending in March, to 5 percent or even higher, economists think.

“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.

Apple, Amazon, Facebook and Microsoft — all companies that pushed the stock market higher last year — fell 2.4 percent or more.

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 percent, to 2,200.17. The index has been far outpacing larger indexes, a signal that investors expect broader growth to continue.

GameStop jumped 18.6 percent a day after the video game retailer’s stock more than doubled. The stock has been mostly declining this month after rising 1,600 percent in January as a large group of investors on Reddit and other social media sites encouraged each other to drive up the shares at the expense of hedge funds betting the stock would go lower.