NEW YORK CITY, RAW – The Nasdaq has ended sharply lower with investors selling high-flying tech shares and pivoting to sectors more likely to benefit from an economic recovery on the back of fiscal stimulus and vaccination programs.
Microsoft, Apple and Amazon.com dropped, weighing more than any other stocks on the S&P 500.
The S&P 500 financial and industrial sector indexes reached intra-day record highs. Most other S&P 500 sectors declined.
The Russell 1000 value index, which leans heavily on economy-linked sectors, edged up, while its growth index, comprising large tech companies, lost ground.
“Today is the perfect encapsulation of the big theme we’ve been seeing in the past couple of months: the vaccine rollout is going well and the economy improving, and that is sending yields and rate expectations higher, which is hurting growth stocks,” said Baird’s Ross Mayfield, in Louisville, Kentucky.
Unofficially, the Dow Jones Industrial Average fell 119.08 points, or 0.38 per cent, to 31,272.44, the S&P 500 lost 50.46 points, or 1.30 per cent, to 3,819.83 and the Nasdaq Composite 361.04 points, or 2.7 per cent, to 12,997.75.
The US economic recovery continued at a modest pace over the first weeks of this year, with businesses optimistic about the months to come and demand for housing “robust” but only slow improvement in the job market, the Federal Reserve reported.
While the vaccine distribution is expected to help the economy, data showed private employers hired fewer workers than expected in February, suggesting a labour market struggling to regain speed.
Another report showed services industry activity unexpectedly slowed in February amid winter storms, while a measure of prices paid by companies for inputs surged to the highest level in more than 12 years.
The US 10-year Treasury yield ticked up to 1.47 per cent, pressuring areas of the market with high valuations.
It was still off last week’s peak of above 1.61 per cent that roiled stock markets as investors bet on rising inflation.
Rising interest rates disproportionately hurt high-growth tech companies because investors value them based on earnings expected years into the future, and high interest rates hurt the value of future earnings more than the value of earnings made in the short term.
“There is a definite headwind for equity markets if yields go above the 1.5 per cent level with most investors keeping an eye on the pace of yield growth,” said Michael Stritch at BMO Wealth Management.
President Joe Biden’s proposed $1.9 trillion coronavirus relief bill would phase out $1400 payments to high-income Americans in a compromise with moderate Democratics, according to lawmakers and media reports.
Exxon Mobil Corp rose after the oil major unveiled plans to grow dividends and curb spending with projections less bold than previous years.