Tech stocks lead indexes lower as bond yields resume climb
Stocks closed lower Wednesday as another rise in bond yields fueled concerns on Wall Street that higher inflation is on the way as the economy picks up.
The S&P 500 dropped 1.3%, shedding an early gain. The pullback is the benchmark index’s second straight loss after clocking its best day in nine months on Monday.
Technology companies bore the brunt of the selling, pulling the S&P 500’s tech sector down 2.5%. Microsoft and Apple both fell more than 2%.
U.S. government bond yields rose after easing a day earlier. The yield on the benchmark 10-year Treasury note climbed to 1.47% from 1.41%.
When bond yields rise quickly, as they have in recent weeks, it forces Wall Street to rethink the value of stocks, making each $1 of profit that companies earn a little less valuable. Technology stocks are most vulnerable to this reassessment, in large part because their recent dominance left them looking even pricier than the rest of the market.
On the flipside, banks benefit when bond yields rise, because it allows them to charge higher rates on mortgages and many other kinds of loans. Financial sector stocks were among the biggest gainers Wednesday. Bank of America and Citigroup added more than 2%.
“The good news to remember is there are other groups taking the baton,” said Ryan Detrick, chief investment strategist for LPL Financial, referring to banks and energy companies benefiting from higher rates, even as tech stocks take a hit.
The S&P 500 dropped 50.57 points to 3,819.72. The Dow Jones Industrial Average slipped 121.43 points, or 0.4%, to 31,270.09. The technology-heavy Nasdaq composite lost 361.04 points, or 2.7%, to 12,997.75.
Traders also sold off smaller company stocks, dragging down the Russell 2000 index 23.72 points, or 1.1%, to 2,207.79.
Wall Street continues to look to Washington, where economic data, comments out of the Federal Reserve and President Joe Biden’s stimulus package remain front and center. Treasury yields hit the psychologically important 1.50% mark last week as investors braced for stronger economic growth but also a possible increase in inflation.
“Some higher inflation at the beginning of a new economic expansion is perfectly normal,” Detrick said.
On Tuesday, Federal Reserve Governor Lael Brainard sought to calm financial markets by emphasizing that the Fed, while generally optimistic about the economy, is still far from raising interest rates or reducing its $120 billion a month in asset purchases.
Federal Reserve Chair Jay Powell will speak Thursday on monetary policy. Investors heard from him last week when he testified in front of Congress, but the format — a question-andanswer session with The Wall Street Journal — is likely to be more illuminating than Powell’s calculated answers to politicians.
Investors are looking ahead to the February jobs report on Friday.
Economists surveyed by FactSet expect employers created 225,000 jobs last month.
The report also includes numbers for how much wages are rising across the economy, a key component of inflation.
Overall, the economic outlook has been brightening in recent weeks following a surprisingly strong retail sales report which showed that $600 stimulus payments approved in late December had translated into a January jump in retail sales that was the strongest since June.
After record turnout flipped Georgia blue for the first time in decades, Republicans who control the Legislature are moving swiftly to implement a raft of new restrictions on voting access, mounting one of the biggest challenges to voting rights in a major battleground state after the 2020 election.
Two bills, one passed by the House on Monday and another that could pass the Senate this week, seek to alter foundational elements of voting in Georgia, which supported President Joe Biden in November and a pair of Democratic senators in January — narrow victories attributable in part to the array of voting options in the state.
The Republican legislation would undermine pillars of voting access by ending automatic voter registration, banning drop boxes for mail ballots and eliminating the broad availability of absentee voting. The bills would restrict early voting on the weekends, limiting the longstanding civic tradition of “Souls to the Polls” in which Black voters cast ballots on Sunday after church services.
Taken together, the new barriers would have an outsized impact on Black voters, who make up approximately one-third of the state’s population and vote overwhelmingly Democratic.
Black voters were a major force in Democratic success in recent elections, with roughly 88% voting for Biden and more than 90% voting for Sens. Raphael Warnock and Jon Ossoff in the January runoff elections, according to exit polls.
Democrats say Republicans effectively are returning to one of the ugliest tactics in the state’s history — oppressive laws aimed at disenfranchising voters.
“Rather than grappling with whether their ideology is causing them to fail, they are instead relying on what has worked in the past,” Stacey Abrams, the voting rights activist, said, referring to what she said were laws designed to suppress votes. “Instead of winning new voters, you rig the system against their participation, and you steal the right to vote.”
The Georgia effort comes as former President Donald Trump publicly continues to promote the lie that the election was stolen from him, which has swayed millions of Republican voters. It also has put further pressure on Republican state legislatures across the country to continue drafting new legislation aimed at restricting voting rights under the banner of “election integrity” as a way of appeasing the former president and his loyal base.
New restrictions on voting have passed in Iowa, and other states are lining up similar efforts, while the Supreme Court is hearing oral arguments this week on another challenge to the Voting Rights Act. Should the high court make changes to Section 2 of the act, which allows after-the-fact challenges to voting restrictions that may disproportionately affect members of minority groups, Democrats and voting rights groups could be left without one of their most essential tools to challenge new laws.
Justice Elena Kagan, in her questioning on Tuesday, appeared to allude to Georgia’s proposed limitations on Sunday voting.
“If a state has long had two weeks of early voting and then the state decides that it is going to get rid of Sunday voting on those two weeks, leave everything else in place, and Black voters vote on Sunday 10 times more than white voters, is that system equally open?” Kagan asked.
For decades, Georgia has been at the center of the voting rights battle, with Democrats and advocacy groups fighting back against repeated efforts to disenfranchise Black voters in the state.
As recently as 2018, Georgians faced hours-long lines to vote in many majority-Black neighborhoods, and thousands of Black voters were purged from the voting rolls before the election. Now Democrats and voting rights groups are alarmed that Republicans are again trying to change the state’s voting laws before critical Senate and governor’s races in 2022.
Although the bills in the Legislature have not been finalized, it is expected they eventually will reach the desk of Gov. Brian Kemp, a Republican. Kemp has not backed either bill explicitly, but he said Tuesday that he was in favor of efforts “to further secure the vote.”
“I’m supportive of putting the photo ID requirement on absentee ballots by mail and other things, making sure that there’s a fair process to observe,” Kemp told radio host Hugh Hewitt. He said his decision on the bills would depend on “what it is and what’s in it.”
Democrats, shut out of power in the statehouse despite holding both U.S. Senate seats, are relatively powerless in the legislative process to stop the bills, although they do have avenues through the courts to challenge any final bill signed.
In an interview on Tuesday, Abrams, the former Democratic minority leader in the Georgia House of Representatives, called Monday’s House vote “a sign of fear” over Republicans’ failure to win support from the young and people of color, two of the fastest-growing sectors of the state’s electorate.
She said large percentages of rural white voters also could be impeded.