Owing to the expectations of strong economic recovery, the bond yields jumped 1.35% on Monday, with a total surge of 27 basis points so far in February. While stocks remained under pressure, the long-term effect of growing economic activity could be positive for Wall Street.
On Monday, February 22, major market correction ensued across stocks of big tech companies with Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), and Microsoft Corporation (NASDAQ: MSFT) dropping 2%. As CNBC reports, the surge in bond yield has put pressure on these growth stocks.
Last year, stocks of tech companies had a gala time on the market owing to COVID-19 economic shifts. As major businesses worldwide moved online, and with work-from-home culture skyrocketing, these companies had registered accelerated growth during the pandemic.
however, it seems that investors are now looking at other cyclical stocks owing to the resurgence of economic activity. On Monday, the broad equity benchmark S&P 500 (INDEXSP: .INX) closed in red for the fifth straight session. As big tech companies entered a correction, Nasdaq Composite (INDEXNASDAQ: .IXIC) tanked 2.5% losing over 300 points. Tesla Inc (NASDAQ: TSLA) was the biggest loser of the index crashing 8.56%.
After dropping over 200 points early in the day, the Dow Jones (INDEXDJX: .DJI) ended 27 points higher in green. The blue-chip benchmark received a significant boost from the handful of economic comeback stocks. On Monday, Walt Disney Co (NYSE: DIS) jumped 4.42% while American Express (NYSE: AXP) gained 3.22%.
Market Investors Observing Movements in Treasury Yields amid Tech Stocks Fall
Equity investors in the market are keeping a close eye on the fastly rising treasury yields. The quick surge in Treasury yields can hurt some high-growing companies dependant on easy borrowing. After jumping 14 basis points last week, the 10-year Treasury yield surged another 1.35% on Monday. so far in February, the benchmark rate has jumped 27 basis points. Matt Maley, chief market strategist at Miller Tabak, said:
“This move in yields should be something that investors keep a close eye on. Just because long-term rates are ultra-low on an historical basis, we do not believe that they will have to rise as far as most pundits think they do…before they impact the stock market.”
Moreover, the high-growth tech companies have seen their stock rallying at an unprecedented rate. Thus, it is very much possible that investors might go for profit booking and move money into the stocks that are likely to grow with economic activity.
Also, Wall Street investors state that the jump in bond yields is a sign of growing confidence in the economic recovery. Thus, stocks should be able to absorb higher rates amid strong earnings. Keith Lerner, the chief market strategist at Truist, said:
“We do not see the recent increase in yields as a threat to the bull market. Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities.”
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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
