Shares rebound barely because the 10-year yield takes a breather
US stocks were up slightly on Wednesday as the rapid surge in 10-year Treasury bond yields cooled, prompting investors to buy some troubled tech stocks on the downturn.
The Dow Jones Industrial Average rose 30 points, or 0.1%. The S&P 500 futures were up 0.2% and the tech-heavy Nasdaq Composite was the first to take the lead, up 0.3%. On Tuesday, the Nasdaq Composite had its worst day since March amid a surge in bond yields.
The 10-year Treasury Treasury yield fell slightly on Wednesday, trading near 1.52%. The yield hit a high of 1.567% on Tuesday.
Tech stocks led the loss on Tuesday, with Facebook, Microsoft and Alphabet losing more than 3%. Amazon lost more than 2%. Rising bond yields can hurt growth stocks, including technology stocks, as they lower the relative value of future earnings and make stocks appear overvalued.
But tech stocks rebounded in early trading Wednesday. Facebook, Amazon, Apple, and Alphabet all rose. Zoom Video added more than 1%.
“If interest rates rise moderately from here on falling inflation expectations, I wouldn’t be surprised if the market resumes its upward trend early in the fourth quarter,” said Brian Price, head of investment management at Commonwealth Financial Network.
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Stock futures were traded in response to returns in the overnight session. While government bond yields bounced slightly from their lows, stock futures came from their highs. Dow futures were up more than 200 points overnight as yields hit their session low.
On Tuesday, the Nasdaq Composite fell 2.83% to 14,546.68 for its worst day since March. The S&P 500 lost 2.04% and the Dow Jones Industrial Average lost 569.38 points, or 1.63%.
The Dow and S&P are now down 3% for September. The Nasdaq is down more than 4.5%.
“Tuesday’s rate-driven sell-off is a reminder of the effectiveness of monetary stimulus as the Fed signals an early lifting of contingency measures,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “This is an uncomfortable time for market participants as Fed support will soon be lifted and stock markets will have to relearn how to stand on their own and cut bond purchases when they feel the economy is not ready.”
The Washington debt ceiling debate has also weighed on stocks. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi that Congress had until October 18 to raise or suspend the debt ceiling and that it would have serious economic consequences. Jamie Dimon, CEO of JPMorgan Chase, said the bank was preparing for the possibility of the US hitting the debt limit.
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.
Semiconductor company Micron shares fell more than 3% after it released a first quarter 2022 earnings and revenue outlook that missed consensus estimates. The shares of discount retailer Dollar Tree rose 10% after the company announced it would increase its share buybacks and experiment with higher prices in some locations.