Dow falls greater than 400 factors, Nasdaq loses greater than 2% as yield spike hits expertise shares
US stocks fell Tuesday, with technology stocks dragging broader markets down as government bond yields traded near three-month highs and Washington lawmakers continued their fiscal deadlock.
The Nasdaq Composite was down 2.4%, its worst day since May, and the S&P 500 was down 1.7%. The Dow Jones Industrial Average lost 467 points, or around 1.3%.
The US 10-year Treasury yield continued to surge on Tuesday, rising to 1.558% as investors bet the Fed would keep its promise to curb its emergency bond purchases as inflation rises. The 10-year yield has turned dramatically to its highest level since June since the Fed signaled last week that it would “soon” scale back its $ 120 billion monthly bond purchases.
The 10-year rate was 1.29% once last week and even 1.13% in August. The 30-year Treasury yield was also moving, topping the 2% mark.
“The market has become increasingly aware of the reality that returns have been terribly low compared to fundamentals. Now the Fed is moving, and everyone is moving their positions at once, like we normally do, ”said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.
Tech stocks fell as a rapid rise in interest rates made their future cash flows less valuable and, in turn, made popular stocks appear overvalued. Higher interest rates also hamper tech companies’ ability to fund their growth and buy back stocks.
The shares of Facebook, Alphabet and Amazon lost more than 3%. Big chip stocks struggled with Nvidia losing more than 4%.
The mood also weighed on a household showdown in Washington. Senate Republicans on Monday blocked a House-passed bill that would have funded the government through December, and suspended the debt ceiling through December 2022.
Congress must approve state funding by Friday to avoid a shutdown, and Treasury Secretary Janet Yellen warned Congress in a letter Tuesday that lawmakers must raise the debt ceiling by October 18 to avoid a national bankruptcy. President Biden’s massive infrastructure plan also faces an uncertain future.
“What is happening in Washington is certainly not helping as we have a lot of uncertainty about tax policy and of course the debt ceiling,” said Jeff Buchbinder, equity strategist at LPL Financial.
As technology stocks dragged the broader market down, sectors tied to the economic reopening outperformed and energy stocks rose slightly. Ford’s shares rose 1% after the company announced plans to build new manufacturing facilities in the United States
“I actually had a little déjà vu last fall, if you remember last September when we saw interest rates move a little and technology react,” said Jeff Kilburg, chief investment officer, Sanctuary Wealth. “And selling pressures in technology were really a catalyst for reflation and rotation trading last fall, and here we are again.”
Federal Reserve Chairman Jerome Powell told the Senate Banking Committee Tuesday that inflation could last longer than expected due to supply chain problems and reopening pressures.
“These effects have been bigger and longer-lasting than expected, but they will wear off and as they do inflation is likely to slide back towards our longer-term 2 percent target,” said Powell.
Tuesday’s weakness prolonged major index losses in September. The Nasdaq is down 4.2% for the month to date, while the S&P 500 and Dow are down 3.5% and 2.7%, respectively.
– with reports from CNBC’s Patti Domm.