Bond yields’ climb again puts squeeze on stocks

Rising Treasury yields put pressure once more on big technology companies Tuesday, pulling U.S. stock indexes further below their recent record highs.

The S&P 500 lost 0.3%. Health care stocks also dragged down the market, outweighing gains by banks, industrial firms and companies that rely on consumer spending. Smaller companies bucked the downward trend, powering the Russell 2000 index to a 1.7% gain.

Treasury yields perked higher after a report showed that consumers are feeling even more confident than economists expected, a big deal for an economy that’s primarily made up of consumer spending. In addition, President Joe Biden is set to unveil details today about plans to spend what could be more than $3 trillion on infrastructure and other measures to help the economy and environment.

The consumer confidence report, and the prospect of more government spending, fueled a sell-off in U.S. bonds, driving their yields higher.

“This is spooking debt investors,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.

The S&P 500 slid 12.54 points to 3,958.55, its second decline in a row. The Dow Jones Industrial Average dropped 104.41 from the record high it set a day before, or 0.3%, to 33,066.96. The Nasdaq composite fell 14.25, or 0.1%, to 13,045.39. The Russell 2000 rose 37.11, to 2,195.80.

The spotlight was again on the bond market, where the yield on the 10-year Treasury rose to 1.73% from 1.72% late Monday. It has jumped from roughly 0.9% at the start of the year because of rising expectations for economic growth and possibly inflation.

When bonds pay more in interest, they can make investors less willing to pay high prices for stocks, particularly those seen as the most expensive. Companies that ask their investors to wait years for big profit growth to come to fruition are also hard-hit, which has many big technology stocks feeling the most pain from rising rates.

Broadcom fell 3.5%, and Cisco Systems dropped 1.4%. Tech giants also fell, including a 1.2% slide by Apple and a 1.4% drop by Microsoft. They were some of the biggest winners earlier in the pandemic, rallying on expectations that they can grow in the future, regardless of whether the economy is locked down by a virus.

Despite the pressure on big tech stocks, most professional investors remain optimistic that the broader market can keep rising. A stronger economy thanks to covid-19 vaccinations and significant spending by the U.S. government should help boost profits for many companies this year, particularly those such as banks, energy producers and industrial companies.

Much of the market’s choppiness is reflecting that expectation. Investors have been shifting money away from companies like Amazon and Netflix — which benefited from a world on lockdown — to airlines, automakers and others that are poised to benefit from a broader reopening.

“Big picture-wise, we’re moving in the direction of a rebalance trade,” said Greg Bassuk, chairman and chief executive officer of AXS Investments. “In the next immediate period, we’re going to continue to see significant volatility.”

Financial stocks rallied, in part because higher longerterm interest rates mean bigger profits from making loans.

Media companies Viacom-CBS and Discovery rose 3.6% and 5.4%, respectively, snapping a multiday slump.