Traders on the floor of the New York Stock Exchange.
Source: New York Stock Exchange
Futures contracts linked to major US stock indices fell during the early-morning session on Thursday night, after an increase in interest rates earlier in the day helped push the Nasdaq Composite into its worst session since October.
Dow futures fell 150 points, or 0.5%, while Nasdaq 100 futures fell 0.9%. The S&P 500 futures lost 0.5%.
Movements in the extended trades came after a negative trading session on Thursday.
The Dow Jones Industrial Average fell 559 points, or 1.8%, falling from a record high. The S&P 500 lost 2.5% to conquer its worst day since January 27, while the Nasdaq Composite fell 3.5% and suffered its biggest sale in one day since 28 October.
The momentum that took stocks to historic levels earlier this month met resistance amid a sudden and pronounced increase in bond yields. The 10-year U.S. Treasury note rate rose briefly to 1.6% on Thursday, before dropping back to around 1.52%, its highest level since February 2020.
The 10-year yield has risen more than 50 basis points since the beginning of the year, a rapid increase for a bond rate used as a benchmark for mortgage rates and auto loans.
Economists and investment managers say the rate hikes are an appropriate reaction of the bond market to the positive economy, as vaccines are launched and GDP forecasts improve, which should benefit corporate profits.
But the accelerated pace of the rise also had the effect of dampening investors’ appetite for highly valued market areas. Thursday’s jump in 10-year yield also placed it above the dividend yield of the S&P 500, meaning that the shares – which are considered to be the most risky assets – lost that fixed payment premium on the bonds.
“Until recently, market participants were able to digest the upward trend in long-term rates, but it looks like the next step in rising interest rates is very difficult,” said Charlie Ripley, senior investment strategist at Allianz Investment Management said in an email.
“Looking at where real yields were, they were simply very low when considering growth expectations, and long-term real yields are likely to continue to rise as economic data improves,” he added.
Popular high-tech stocks like Alphabet, Facebook and Tesla, which started the year on solid foundations, fell 3.2%, 3.6% and 8% on Thursday. Apple, one of the largest companies with a lot of money in the world, saw its shares plummet more than 15% last month.
Instead of technology, where companies tend to borrow more on average, investors are transferring money to so-called reopening negotiations, buying shares in companies that would benefit most from the launch of the vaccine and a return to regular travel trends and dinners.
Energy gained 6.8% just this week, the biggest winner by far, amid expectations that consumers around the world will soon be driving and flying as they were before the Covid-19 pandemic. Industrial and financial are the only two other sectors in the green week so far.
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