US stocks ended a wild session not far from where it started, thanks to a rebound in technology company stocks.
The broad S&P 500 index finished up 0.1% to hit a losing streak of five sessions after falling 1.8% at the start of the session. Federal Reserve Chairman
The upswing began as the inflation worries stemmed from the recent surge 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 any significant recovery « is likely to take time ».
A sharp surge in US Treasury bond yields over the past few days has weakened investor appetites for riskier assets, including stocks. Stocks of tech companies, which for the most part have been more fueling the broader market over the past year, are seen as particularly vulnerable due to high valuations. Your gains become less valuable these days as investors apply a higher discount rate thanks to rising yields on 10-year government bonds.
Before Mr. Powell’s comments, the tech-heavy Nasdaq Composite Index fell as much as 4%, and investor favorites like Tesla and Moderna recorded double-digit losses. After Mr. Powell started speaking, stocks in technology companies made up most of their losses and helped ease pressure on also higher-end Dow industrials. The blue chip index added 15.66 points, or less than 0.1%, to 31537.35.
The Nasdaq stayed in the red, closing 67.85 points or 0.5% at 13465.20. The tech-heavy index has fallen five in the last six trading sessions, down 4.5% from its February 12 high.
The surge in bond yields « naturally leads investors and markets to scrutinize stocks, » said Paul Jackson, global director of asset allocation research at Invesco. Investing in government bonds looks more attractive for the first time in months, he said.
« However, the level at which bond returns on stocks become really problematic is far from where we are now, » added Jackson.
However, some investors say they are already re-evaluating their portfolios. Most of these moves are about getting some cash out of growth stocks and putting some of those profits into reopening stocks and other companies that are more tied to the economy.
One of the favorites on Tuesday was casinos
MGM Resorts International,
which are up $ 9.73 or 7.7% to $ 136.48 or $ 2.07 or 5.5% to $ 39.59, and
Up $ 5.33, or 2.8%, to $ 197.09. Airlines, including Southwest Airlines and Alaska Air Group, also traded higher.
« We put more emphasis on the wider economy and got exposure to midsize companies, » said Tom Hainlin, national investment strategist at US bank Wealth Management. The move in yields has also reinvigorated interest in pockets of the bond market, Hainlin added, particularly in non-agency mortgage-backed securities and corporate bonds.
Bond yields, which are moving in the opposite direction to prices, also fell after Mr Powell’s comments, helping to ease some of the pressure on the stock market. The 10-year US Treasury note returned 1.363% compared to 1.381% at the start of the day. Returns remain below pre-pandemic highs, but investors say it is the rate at which returns have increased, not their level, that weighs on stocks.
« Right now, none of these indicators are flashing red – they still are not even amber – but they’re not as green as they were six months ago, « she said, referring to the level of yields and expectations of when the Fed is likely to raise interest rates.
Tesla fell over $ 15.66, or 2.2%, to $ 698.84 after falling nearly 9% on Monday. The move came when the price of Bitcoin fell.
The recent volatility in the cryptocurrency markets followed comments from the Tesla CEO
who said over the weekend that Bitcoin and Ethereum prices seemed high. The electric vehicle maker announced earlier this month that it had purchased $ 1.5 billion worth of Bitcoin. Mr Musk has also become a prominent cryptocurrency cheerleader.
Stocks of tech companies and other stocks that have done well during the pandemic have come under pressure.
extended its recent decline, dropping $ 1.25, or 4.5%, to $ 26.75. Payment company Square fell $ 11.49, or 4.3%, to $ 256.59.
Growth could slow this year, dragging stocks down $ 8.61, or 3.1%, to $ 267.24.
Stocks of blank check companies fell broadly, with an ETF demoting Trend was dedicated
Defiance Next Gen SPAC Derived ETF,
losing almost 7%. Reddit favorites like GameStop and Magnite fell $ 1.03, or 2.2%, to $ 44.97 and $ 6.52, or 11%, to $ 52.72, respectively.
Overseas, the Stoxx Europe 600 lost 0.4%, led by technology stocks. In Asia, Hong Kong’s Hang Seng rose 1% and China’s Shanghai Composite Index rose 0.2%.
Published in the print edition of February 24, 2021 as « Stocks Bounce Back After Powell Talk ».