Tech companies led a large sell-off of stocks on Wall Street on Tuesday, putting the S&P 500 Index on track for its biggest drop since May.
The benchmark index fell 1.9% at 1:23 p.m. EST. The Dow Jones Industrial Average fell 531 points, or 1.5%, to 34,339 and the tech-rich Nasdaq fell 2.6%. The decreasing numbers were 4 times more numerous than the winners on the New York Stock Exchange.
The focus of Wall Street action was once again in the bond market, where rapidly rising Treasury yields are forcing investors to reassess whether prices have been too high for stocks, especially the more popular ones.
The yield on the 10-year Treasury bill, a benchmark for many types of loans, including mortgages, jumped to 1.53%. This is its highest level since the end of June, against 1.48% Monday night and 1.32% a week ago.
Higher yields mean Treasuries pay more interest, causing investors to pay less high prices for stocks and other things that are riskier bets than super-safe US government bonds. . The recent rate hike has hit tech stocks particularly hard, as their prices appear to be more expensive than the rest of the market, relative to their earnings.
There have also been many tech stocks recently offered due to expectations of significant earnings growth in the distant future. When interest rates are low, an investor doesn’t lose much by paying high prices for the stock and waiting years for growth to occur. But when Treasuries pay more in the meantime, investors are less willing.
This week’s slump for the market is reminiscent of an episode earlier this year when expectations of rising inflation and a stronger economy pushed Treasury yields up sharply. The 10-year rate jumped to nearly 1.75% in March after starting the year around 0.90%. Tech stocks were also hit hard by this slowdown.
Chipmaker Nvidia fell 3.9% and Microsoft fell 2.9%. The wider tech sector is also facing a global shortage of chips and parts due to the virus pandemic and this could worsen as an electricity crisis in parts of China closes factories. .
Communication companies have also weighed on the market. Facebook fell 3.5% and Google’s parent company Alphabet fell 3.4%.
Energy was the only sector in the S&P 500 that was not in the red. Exxon Mobil rose 1.2% and Schlumberger rose 3.9% for the biggest gain among S&P 500 stocks.
Another lingering market concern originating in China is the possible collapse of one of China’s largest real estate developers. Evergrande Group is struggling to avoid default on billions of dollars in debt.
Asian markets were mixed while European markets fell.
Investors faced a turbulent market in September as they tried to assess the progress of the economic recovery and its impact on various industries. The S&P 500 is down 3.6% so far in September and heading towards its first monthly loss since January.
COVID-19 remains a persistent threat and continues to wreak havoc on businesses and consumers. Economic data on consumer spending and the labor market are mixed. US consumer confidence fell for the third consecutive month in September, according to a Conference Board report.
Companies warn that supply chain issues and rising prices could hurt sales and profits. The Federal Reserve has maintained that the rise in inflation is temporary and linked to these supply chain issues as the economy recovers from the pandemic. Investors continue to fear that higher inflation may no longer be permanent, and rising bond yields reflect some of these concerns.
“At the end of the day, the supply chain thesis is really tested and the Fed, businesses and consumers have had to react to some of the realities on the ground,” said Eric Freedman, chief investment officer at US Bank Wealth Management. .
AP Business Writer Stan Choe contributed.
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