The Nasdaq Composite fell sharply on Monday, as rising bond yields and investors’ bets on a further economic rebound weighed on the shares of technology giants such as Apple and Microsoft. MSFT -0.13%
The tech-heavy Nasdaq lost 341.41 points, or 2.5%, to close at 13533.05. The broad-based S&P 500 fell 30.21, or 0.8%, to 3876.50, in its fifth consecutive losing session.
The Dow Jones Industrial Average eked out a slight gain, rising 27.37, or less than 0.1%, to 31521.69.
Tech stocks that were recently trading at records posted broad declines. Microsoft, Apple and Amazon.com AMZN -0.11% all fell between 2% and 3%. Shares of electric-car maker Tesla tumbled $66.80, or 8.6%, to $714.50.
Such stocks powered the U.S. stock market’s rebound from a coronavirus selloff just under a year ago, and they also are a favorite of the small investors who have piled into stock and options trading over the past year. But the rally has prompted concerns that megacap tech stocks are overvalued, making them vulnerable to sudden slumps.
Monday’s tech selloff didn’t have a clear catalyst, but some investors and analysts pointed to recent moves in U.S. government-bond yields.
As investors have grown increasingly confident about the prospects for a continued economic recovery, Treasurys have sold off, pushing up their yields, which move in the opposite direction as prices. That increases the attractiveness of government bonds—often seen as a haven investment—while reducing the allure of tech stocks.
“As the yield goes up, there is more demand for [government bonds] in relation to other assets,” said Hani Redha, a portfolio manager at PineBridge Investments. “How much are you willing to pay for stocks? If you’re only getting a very low yield from bonds, you should be willing to pay a higher amount for stocks. But that starts to change when bond yields go up.”
The yield on 10-year Treasurys rose to 1.370%, from 1.344% Friday, extending its gains after climbing for three consecutive weeks.
Factors behind rising yields include the rollout of Covid-19 vaccines and President Biden’s proposed $1.9 trillion stimulus package, which is expected to accelerate an economic rebound.
“They are about to put lighter fluid onto the barbecue with this $1.9 trillion in stimulus,” said Patrick Spencer, managing director of U.S. investment firm Baird. “You’ve got everything in your favor at the moment: good news on Covid-19 and stimulus and good earnings. That is why rates are higher.”
Oil prices have recovered to pre-pandemic levels amid expectations that mass vaccinations will spur a revival of travel. Front-month U.S. crude futures gained 3.8% on Monday to settle at $61.49 a barrel, their highest level since January 2020. Analysts attributed the gains to a weaker dollar, which makes oil cheaper overseas, and expectations that inventory data to be released later this week will show a sharp drop in U.S. stockpiles.
Meanwhile, money managers have rotated out of richly valued technology stocks into economically sensitive sectors, such as banking and energy, which could benefit from the anticipated recovery.
“Valuations for technology and growth stocks have generally been too high, compared to the rest of the market,” said Jason Pride, chief investment officer for private wealth at Glenmede.
Since late last year, Glenmede has been pivoting into stocks of companies with smaller market capitalizations, Mr. Pride said. More recently it has looked into opportunities in corporate real estate, which suffered steep losses in the Covid-19 pandemic, he added.
Six of the S&P 500’s 11 sectors rose on Monday, with energy rallying 3.5%, and financials also posting gains. Tech, consumer-discretionary and utility stocks were the worst performers.
In corporate news, Kohl’s KSS -0.85% shares jumped $3.27, or 6.2%, to $55.97 after The Wall Street Journal reported that a group of activist investors with a large stake in the company is attempting to take control of the department-store chain’s board.
Cooper Tire & Rubber surged $12.87 a share, or 29%, to $56.64 after Goodyear Tire & Rubber GT -2.99% agreed to buy its rival for about $2.8 billion in cash and stock. Goodyear shares rose $2.93, or 21%, to $16.82.
Investors are watching for any indication of how the Federal Reserve might react to the sharp rise in bond yields. Fed Chairman Jerome Powell is set to testify before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
“How they will respond to this, that is also part of the anxiety,” Mr. Redha said. “It is a pretty sensitive time, and the market is going to be fixated on this.”
Overseas, the pan-continental Stoxx Europe 600 fell 0.4%. In Asia, most major stock benchmarks retreated. The Shanghai Composite Index fell almost 1.5%, while Hong Kong’s Hang Seng dropped 1.1%.
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