The US stock market rose lower on Tuesday as investors awaited Federal Reserve Chairman Jerome Powell’s testimony in Congress on the health of the economy.
Futures linked to the S&P 500 fell 0.1%. The benchmark for equities fell for a fifth consecutive day on Monday, the longest losing streak since February. Contracts for the Nasdaq-100 declined 0.6%, indicating that technology stocks will continue to lead the market lower.
A sharp rise in yields on US government bonds in recent days has dampened investors’ appetite for riskier assets, including equities. Shares in technology companies, which have pushed the broader market higher in recent years, are seen as particularly vulnerable. This is because many technology companies’ valuations are linked to their future earning potential. These gains are less valuable in today’s terms when investors apply a higher discount rate.
The rise in bond yields naturally causes investors to reconsider the stock overview, says Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is starting to look more attractive for the first time in months, he said.
But “the level at which bond yields are really becoming problematic for equities is far from where we are now,” he said. Jackson added.