Traders on the floor of the New York Stock Exchange.
Source: New York Stock Exchange
Futures contracts pegged to major US stock indices fell during Thursday night’s session after a rally in interest rates earlier in the day helped push the Nasdaq Composite to its worst session since October.
Dow futures fell 150 points, or 0.5%, while Nasdaq 100 futures fell 0.9%. S&P 500 futures lost 0.5%.
The moves in extended trading came after a negative regular trading session on Thursday.
The Dow Jones Industrial Average fell 559 points, or 1.8%, falling from an all-time high. The S&P 500 lost 2.5% to close its worst day since January 27, while the high-tech Nasdaq Composite lost 3.5% and saw its biggest one-day sell-off since October 28.
The momentum that took stocks to record highs earlier this month has met resistance amid a sudden and steep rise in bond yields. The rate on the 10-year US Treasury bond briefly spiked to 1.6% on Thursday before falling back to around 1.52%, its highest level since February 2020.
The 10-year yield has risen more than 50 basis points since the beginning of the year, a rapid increase for a bond rate that is used as a benchmark for mortgage rates and auto loans.
Economists and investment managers say the rate hike is an appropriate bond market reaction to the positive economy as vaccines roll out and GDP forecasts improve, which should benefit corporate profits.
But the strong pace of the increase has also had the effect of curbing investors’ appetite for the most valued areas of the market. Thursday’s jump in the 10-year yield also put it above the dividend yield of the S&P 500, meaning equities, which are considered riskier assets, have lost that fixed-payment premium over bonds.
“Until recently, market participants have been able to digest the long-term uptrend in rates, but it looks like the next step in interest rates is a bigger bite,” Charlie Ripley, Senior Investment Strategist, Allianz Investment Management said in an email.
“Looking at where the real returns were, they were simply too low when considering growth expectations, and long-term real returns are likely to continue to rise as economic data improves,” he added.
Popular stocks of big tech like Alphabet, Facebook and Tesla, all of which started the year on a solid footing, fell 3.2%, 3.6% and 8% on Thursday. Apple, one of the world’s largest companies with large amounts of cash, has seen its shares fall more than 15% in the last month.
Instead of technology, where companies tend to borrow more on average, investors are transferring money to so-called reopening operations, buying shares in companies that would benefit most from the launch of the vaccine and a return to the usual travel trends. and meals.
Energy has gained 6.8% this week alone, the biggest winner by far amid expectations that consumers around the world will soon drive and fly as they were before the Covid-19 pandemic. The industrial and financial sector are the only other two sectors in the green week to date.
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