Pool / Getty Images
Global equities plunged on Thursday after US equities fell sharply the day before, with rising bond yields causing investors to question the high valuations of technology stocks in particular.
S&P 500 futures fell 0.3% after a sharp drop on Wednesday, while Dow Jones futures fell 0.15%. Futures for the high-tech Nasdaq 100 index fell 0.43% as investors cooled off on some of the most flashy names on the market.
An increase in bond yields unnerved investors on Wednesday, causing the Nasdaq to plummet 2.7%, with Tesla falling 4.8% and Amazon losing 2.9%. Nasdaq soared more than 80% from March lows, making some investors anxious.
Nerves spread across Asia overnight, with China’s CSI 300 falling 3.15% and Japan’s Nikkei 225 falling 2.13%.
European equities then opened lower, with Stoxx 600 across the continent falling 0.64% at the start of trading and the UK’s FTSE 100 falling 1.08%.
The catalyst for the stock market’s nervousness has been an increase in bond yields, with the yield on the 10-year US Treasury note reaching 1.5% on Wednesday, before declining. It fell 0.6 basis points to 1.464% on Thursday morning.
Ultra-low yields have supported the stock boom – and technology stocks in particular – leading investors to fast-growing stocks that offer solid returns.
But higher yields are starting to make stocks less attractive, while increasing borrowing costs and eroding the value of future earnings.
Yields increased as traders sold government bonds at a rapid rate, with yields moving inversely in prices.
Investors believe that growth and inflation will increase dramatically in 2021, which makes them demand higher bond returns. Some also think that central banks can reduce support for economies by increasing yields.
The eyes of the market will, therefore, be on Federal Reserve Governor Jerome Powell, who is expected to speak at The Wall Street Journal’s job summit at 12:05 EST on Thursday.
“Markets will look for signs of Powell regarding their comfort with rising bond yields, inflation and any signs of possible changes in the Fed’s orientation,” said Jeffrey Halley, senior market analyst at the foreign exchange firm Oanda. “He will have to choose his words very carefully.”
Hussein Sayed, chief market strategist for the FXTM trading platform, said: “With U.S. inflation expectations over the next five years hitting a 13-year high and long-term borrowing costs rising, central banks face challenges. difficult to comfort investors. “
“Financial conditions are becoming more restrictive, despite the fact that monetary policy is loose and policymakers are not clearly signaling any intention to raise interest rates anytime soon.”
The dollar index rose 0.27% on Thursday morning to 91.19, driven by rising bond yields.
In the oil markets, Brent crude fell 0.66% to $ 63.63 a barrel, while WTI crude fell 0.82% to $ 60.79 a barrel, with OPEC + producers getting ready to meet to discuss production plans.
Bitcoin fell about 5% in a 24-hour period to $ 49,052 on Thursday morning.