Stocks rebound as 10-year yield’s run takes a breather, Dow rises more than 100 points
29 Sep 2021
U.S. stocks were slightly higher Wednesday as the rapid increase in the 10-year Treasury yield cooled, leading investors to buy some beaten-up tech stocks on the dip.
The Dow Jones Industrial Average rose 150 points, or 0.4%. The S&P 500 gained 0.6%, and the tech-heavy Nasdaq Composite was the early leader with a gain of 0.8%. 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.
Tech stocks led Tuesday’s rout with Facebook, Microsoft and Alphabet losing more than 3%. Amazon fell more than 2%. Rising bond yields can hurt growth stocks, including tech stocks, because they lower the relative value of future earnings and can make the shares look overvalued.
But tech stocks were rebounding in Wednesday’s early trading. Facebook, Amazon, Apple and Alphabet all rose. Netflix added more than 3%.
“If interest rate increases moderate from here on the back of declining inflation expectations, then it wouldn’t surprise me to see the market resume its march higher as we move into the fourth quarter,” said Brian Price, head of investment management for Commonwealth Financial Network.
Stock futures were trading in reaction to yields in the overnight session. As Treasury yields bounced slightly off their lows, stock futures came off their highs. Dow futures were up more than 200 points at one point overnight when yields were at their lowest point of the session.
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.
Shares of the semiconductor company Micron slipped 0.5% after it reported earnings and revenue outlook for the first quarter of 2022 that missed consensus estimates. Shares of discount retailer Dollar Tree jumped 13% after the company announced that it was increasing its stock buybacks and experimenting with higher prices in some locations.
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.