US stocks fell on Thursday as shares of technology companies and other high-growth stocks succumbed to another sell-off in the government bond market.
All three major stock indices fell shortly after the opening bell, led by a 1.5% drop in the Nasdaq Composite. The S&P 500 slipped 0.6%, while the Dow Jones industrial average was essentially level, a day after closing above 33,000 for the first time.
The move is the latest shock associated with the sharp rise in treasury yields. Signs of a recovery economy led investors to drop government bonds, causing yields to rise higher. The higher returns mean that borrowing costs for businesses and individuals will rise, so investors have sold expensive technological stocks that seem less valuable in a rising exchange rate environment to boost shares in companies that could benefit from an economic boom.
The stock futures started to plummet overnight after the 10-year treasury yield, a key measure of lending costs, rose to 1,747%, exceeding 1.7% for the first time since January 2020.
“This morning, the markets woke up and decided if the Fed wanted to keep the policy so loose, that they wanted a higher risk premium,” said Michael Matthews, a fixed-income fund manager at Invesco.
A day earlier, the Fed had raised some projections for growth and inflation based on the latest round of stimulus issued by Congress and the introduction of Covid-19 vaccines.
“It’s all about inflation expectations: the fact that we are exceeding inflation expectations outside the Fed’s target makes the bond market effective,” added Edward Park, chief investment officer of Brooks Macdonald.
Investors looked at sectors such as banks, airlines and energy companies, which could benefit more as social and business activity increased. Shares of financial stocks in the S&P 500 rose 1.3% as investors were likely to earn the price of banks more on the loans they issued. Utilities and manufacturers also traded slightly higher.
Technical stocks in the index fell by 1.5%.
On Thursday, the number of Americans applying for unemployment benefits for the first time rose to 770,000 in the week ended March 13, compared to 725,000 the previous week. While applications for unemployed claims, a proxy for redundancies, fell from its peak last year, they remain at historically high levels.
“The thing to note is the number of jobs, and central banks are keeping an eye on everyone,” he said. Matthews said. “The Fed and all central banks have decided that it is better to warm up the economy, to help the recovery, to get as low unemployment as they can.”
Bond investors are betting that the Fed will raise interest rates within the next two years, despite data showing on Wednesday that most policymakers still expect to maintain ultra-low interest rates until 2023. Only seven of the 18 Fed officials expected the rate of increase in 2022 or 2023 from five in December.
Overseas, the pan-continental Stoxx Europe 600 rose 0.2%.
In Asia, most important benchmarks closed higher. The Chinese Shanghai Composite Index added 0.5%, while Hang Seng rose 1.3% in Hong Kong. Australia’s S & P / ASX 200 fell 0.7%.
—Michael Wursthorn contributed to this article.
Write to Caitlin Ostroff by [email protected]
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