The S&P 500 dipped on Wednesday, while mega-cap technology stocks gained, after the index ended a seven-day winning streak in the previous session.
The Dow Jones Industrial Average fell 110 points. The S&P 500 traded down 0.2% and the technology-heavy Nasdaq Composite dipped 0.3% after hitting a fresh record shortly after the open.
With falling rates and concern about peaking economic growth, investors have rediscovered their old Big Tech favorites. Apple and Amazon are both up double digit percentage returns over the past 1 month, far outpacing the S&P 500’s 2.8% return.
Defying many predictions, the 10-year Treasury yield fell to 1.306% on Wednesday. Major technology names like Apple, Facebook and Google-parent Alphabet rose on Wednesday. Shares of Amazon gained 1% even after the e-commerce giant rallied nearly 5% on Tuesday.
“As has been the case for some time, the direction of bond yields and tech stock have been joined at the hip,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “Traders will be watching as S&P 500 tech index move closer to its relative price high established last September. A break above that level would certainly reinforce a sustained leadership cycle for tech.”
Energy stocks were in the red as oil prices retreated. WTI crude touched a 6-year high briefly on Tuesday before retreating. Crude was down again on Wednesday. Occidental Petroleum, APA Corp. and Pioneer Natural Resources all rose more than 2%.
Bank shares including Goldman Sachs and Bank of America continued their retreat on Wednesday as long-term bond yields fell further, hurting the industry’s profitability prospects. Yields on the short-end of the so-called Treasury curve, including 1-year bills and 2-year notes, were flat to higher.
Investors will be listening more clues on the direction of the Federal Reserve’s monetary policy when it releases its latest meeting minutes Wednesday afternoon.
The Fed’s minutes are expected to be dovish with the central bank looking for progress in the labor market and not worried that recent inflation will become a persistent trend. Slowing down the bond buying would be the Fed’s first major retreat from the easy policies it put in place when the economy shut down last year.
The end of the Fed’s $120 billion a month in Treasury and mortgage purchases would also signal that the central bank’s next move could be to raise interest rates.
During the regular session on Tuesday, the 30-stock Dow fell 208 points. The S&P 500 ended the day down by 0.2%, retreating from a record. The Nasdaq Composite rose nearly 0.2% to a fresh all-time high.
Investors may be worried the economy might be approaching its peak and that a correction could be on the way. In addition to complacency in the market, the combination of profit-margin pressures, inflation fears, Fed tapering and possible higher taxes could contribute to an eventual drawdown, market strategists say.
— CNBC’s Patti Domm contributed reporting.