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Market comeback rally weakens with S&P up slightly, Nasdaq trailing

Market comeback rally weakens with S&P up slightly, Nasdaq trailing

29 Sep 2021

U.S. stocks were slightly higher Wednesday as the rapid increase in the 10-year Treasury yield cooled.

The Dow Jones Industrial Average rose 160 points, or 0.5%. The S&P 500 gained 0.4%, but the tech-heavy Nasdaq Composite gave up most of its early gains and briefly traded in negative territory. On Tuesday, the Nasdaq Composite posted its worst day since March amid a spike in bond yields.

The 10-year Treasury Treasury yield eased on Wednesday to trade near 1.5%. The yield touched a high of 1.567% Tuesday and appeared to put pressure on growth stocks.

Tech stocks, which were hit hardest during Tuesday’s rout, bounced at the open but slipped as the session progressed. Apple and Netflix held on to healthy gains but semiconductor stocks weighed on the sector. Shares of Micron slipped nearly 2% after it gave an earnings and revenue outlook for the first quarter of 2022 that missed consensus estimates. Nvidia and Advanced Micro Devices also declined.

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Meanwhile, defensive stocks performed well as the utilities sector outperformed. Additionally, aerospace giant Boeing rose more than 4% to be one of the the best performers in the Dow. Energy stocks were steady after outperforming earlier in the week.

“Higher bond yields post last week’s more hawkish FOMC, along with higher oil prices, stabilization in high frequency economic indicators, and evidence that the latest COVID surge in the US has peaked, have pressured the Growth trade and bolstered the Value and Small Cap trades – a shift in leadership/ rotation that’s become yet another hurdle for the S&P 500 given the index’s heavy bias towards secular growth,” Lori Calvasina from RBC Capital Markets said in a note. “Our bottom line, we think choppy conditions in US equities will persist a while longer.”

Shares of discount retailer Dollar Tree jumped 16%, making it a top performer in the S&P 500, after the company announced that it was increasing its stock buybacks and experimenting with higher prices in some locations.

On Tuesday, the Nasdaq Composite dropped 2.83% to 14,546.68 for its worst day since March. The S&P 500 shed 2.04% and the Dow Jones Industrial Average lost 569.38 points, or 1.63%.

The Dow and S&P are now down 3% for September. The Nasdaq is down more than 4.5%.

Tuesday’s “interest rate induced sell-off is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again. However, we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn’t think the economy was ready.”

The debt ceiling debate in Washington has also weighed on equities. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi Congress has until Oct. 18 to raise or suspend the debt ceiling and that failure to do so would have severe consequences for the economy. JPMorgan Chase CEO Jamie Dimon said the bank was prepping for the possibility of the U.S. hitting the debt limit.

Federal Reserve Chair Jerome Powell said Tuesday to the Senate Banking Committee that inflation could persist longer than expected as a result of supply chain issues and reopening pressures.

On the economic data front, pending home sales rose 8.1% in August, according to the National Association of Realtors, well above the 1.2% expected by economists surveyed by Dow Jones.