Spike in bond yields spooks investors, deflates tech stocks
Technology companies led a broad slide in stocks on Wall Street on Tuesday, deepening the market’s September swoon.
The S&P 500 fell 2%, its worst drop since May. The tech-heavy Nasdaq dropped 2.8%, its biggest drop since March. Decliners outnumbered advancers on the New York Stock Exchange 4 to 1.
The benchmark S&P 500 is down 3.8% so far this month and on pace for its first monthly loss since January. The September slump has been an exception to a mostly steady stream of gains so far this year that has brought the S&P 500 up 15.9% since the beginning of 2021.
The selling came as a swift rise in Treasury yields forces investors to reassess whether prices have run too high for stocks, particularly the most popular ones. The yield on the 10-year Treasury note, a benchmark for many kinds of loans including mortgages, jumped to 1.54%. That’s its highest level since late June and up from 1.32% a week ago.
Bond yields started rising last week after the Federal Reserve sent the clearest signals yet that it is moving closer to begin withdrawing the unprecedented support it has provided for the economy throughout the pandemic. The Fed indicated it may start raising its benchmark interest rate sometime next year and will likely begin cutting back the pace of its monthly bond purchases before the end of this year.
A rise in yields means Treasurys are paying more in interest, and that gives investors less incentive to pay high prices for stocks and other things that are riskier bets than super-safe U.S. government bonds. The recent upturn in rates has hit tech stocks particularly hard because their prices look more expensive than much of the rest of the market, relative to how much profit they’re making.
Many tech stocks also got bid up recently on expectations for big profit growth far in the future. When interest rates are low, an investor isn’t losing out on much by paying high prices for the stock and waiting years for the growth to happen. But when Treasurys are paying more in the meantime, investors are less willing.
The S&P 500 fell 90.48 points to 4,352.63. The Dow Jones Industrial Average fell 569.38 points, or 1.6%, to 34,299.99. The blue-chip index briefly fell 614 points.
Small company stocks also lost ground. The Russell 2000 index dropped 51.23 points, or 2.2%, to 2,229.78.
Chipmaker Nvidia fell 4.4%, Apple slid 2.4%, and Microsoft fell 3.6%.
Communications companies also weighed down the market. Facebook and Google’s parent company, Alphabet, each fell 3.7%.
Energy was the only sector in the S&P 500 that wasn’t in the red. Exxon Mobil rose 1% and Schlumberger gained 2.4% for the biggest gain among S&P 500 stocks.
Gold for December delivery fell $14.50 to $1,737.50 an ounce. Silver for December delivery fell 22 cents to $22.47 an ounce and December copper fell 4 cents to $4.25 a pound.
The dollar rose to 111.59 Japanese yen from 111.02 yen. The euro fell to $1.1677 from $1.1700.