US stocks ended a crazy session not far from where they started, thanks to a rebound in tech company stocks.
The broad S&P 500 Index ended up gaining 0.1% to break a five-game losing streak after falling as much as 1.8% earlier in the session. Federal Reserve Chairman Jerome Powell kicked off the turnaround by easing inflation concerns that had stemmed from a recent rise in bond yields.
“The economy is far from our employment and inflation targets,” Powell said at a Senate Banking Committee hearing Tuesday morning, adding that a substantial recovery “will likely take time.” .
A sharp rise in US government bond yields in recent days has sapped investor appetite for riskier assets, including stocks. Shares of tech companies, which have propelled the overall market up for much of the past year, are seen as particularly vulnerable, thanks to high valuations. Their profits lose their present value when investors apply a higher discount rate, thanks to higher yields on 10-year Treasury bills.
These concerns weighed heavily on investors Tuesday morning.
Before Mr Powell’s comments, the highly tech Nasdaq Composite Index fell 4% and investor favorites including Tesla and Moderna posted double-digit losses. After Mr. Powell started speaking, stocks of tech companies recouped most of their losses, helping to ease the pressure on Dow industrials, which also closed higher. The blue chip index added 15.66 points, or less than 0.1%, to 31,537.35.
The Nasdaq remained stuck in the red, closing 67.85 points, or 0.5%, at 13,465.20. The high-tech index has fallen in five of the past six trading sessions, leaving it 4.5% from its Feb.12 high.
Rising bond yields “naturally prompt investors and cause markets to re-examine their view of equities,” said Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is starting to look more attractive for the first time in months, he said.
But “the level at which bond yields become really problematic for stocks is far from where we are now,” Jackson added.
However, some investors say they are already re-evaluating their portfolios. Most of these moves involve taking money out of growth stocks and spending some of those gains on reopening stocks and other companies more tied to the economy.
Tuesday favorites included Wynn Resorts and MGM Resorts International casinos,
which rose $ 9.73, or 7.7%, to $ 136.48 and $ 2.07, or 5.5%, to $ 39.59, respectively, and Walt Disney,
up $ 5.33, or 2.8%, to $ 197.09. Airlines, including Southwest Airlines and Alaska Air Group, also negotiated higher.
“We’re putting more emphasis on the broader economy and exposing ourselves to mid-sized companies,” said Tom Hainlin, national investment strategist at US Bank Wealth Management. The shift in yields has also rekindled interest in the pockets of the fixed income market, Hainlin added, particularly mortgage-backed securities and corporate debt securities.
Bond yields, which move opposite to price, also eased following Mr Powell’s comments, helping to ease the pressure on the stock market a bit. The yield on the 10-year US Treasury bill was 1.363% compared to 1.381% earlier today. Yields remain below pre-pandemic highs, but investors say it’s the speed at which yields have risen, rather than their level, that is hurting stocks.
“At the moment, none of those indicators are flashing red – they’re not even orange yet – but they’re not as green as they were six months ago,” she said. referring to the level of yields and the Fed’s expectations. likely to increase interest rates.
Tesla fell $ 15.66, or 2.2%, to $ 698.84 after dropping almost 9% on Monday. The move comes as the price of bitcoin has fallen.
The latest episode of volatility in the cryptocurrency markets followed comments from Tesla CEO Elon Musk, who said over the weekend that bitcoin and ethereum prices appear high. Earlier this month, the electric vehicle maker revealed that it had purchased $ 1.5 billion in bitcoin. Mr. Musk has also become a leading cheerleader for cryptocurrencies.
The stocks of tech companies and other stocks that have performed well during the pandemic have come under pressure. Palantir Technologies extended its recent decline, losing $ 1.25, or 4.5%, to $ 26.75. Payment firm Square was down $ 11.49, or 4.3%, to $ 256.59.
The Home Depot said growth may slow this year, pushing shares down $ 8.61, or 3.1%, to $ 267.24.
Other corners of the stock market considered to be overheated have also vanished.
Stocks of blank check companies fell sharply, with an ETF dedicated to the trend, the Defiance Next Gen SPAC Derived ETF,
losing almost 7%. Reddit favorites, including GameStop and Magnite, fell $ 1.03, or 2.2%, to $ 44.97 and $ 6.52, or 11%, to $ 52.72, respectfully.
Abroad, the Stoxx Europe 600 index lost 0.4%, led down by technology stocks. In Asia, the Hong Kong Hang Seng climbed 1% and China’s Shanghai Composite Index fell 0.2%.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Joe Wallace at Joe.Wallace@wsj.com
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8