Technology shares fell on Monday as government bond yields continued to rise, indicating that investors expect the Federal Reserve to move quickly in raising interest rates.
The S&P 500 fell 0.6% on Monday, on track for the fifth consecutive day of losses. The Dow Jones Industrial Average fell 0.7%, or about 250 points.
Nvidia chip makerAnd
One of the best performing stocks in 2021, it fell 1.7%, while Facebook’s Meta Platforms shed 1.5%. Apple and Microsoft shares fell more than 0.5%.
The technical losses came with the 10-year Treasury yield rising to 1.782% from 1.769% on Friday. The benchmark yield briefly reached 1.807% on Monday, the highest intraday level since January 2020, according to Tradeweb..
Bond yields move in the opposite direction to prices.
The rise in revenue since the start of 2022 has sent tech stocks reeling. By selling bonds and sending higher yields, investors are signaling that they believe the Federal Reserve may raise short-term interest rates in March and begin reducing its holdings of bonds and other assets soon thereafter.
Low rates helped fuel a surge in technology stocks last year, making bonds less attractive and spurring investors to buy risky assets. But with the Federal Reserve focused on fighting inflation, tech stocks have lost some of their luster. The prospect of higher interest rates also reduces the value investors see in the future cash flows of fast-growing technology companies, hurting their stock price.
“It is clear that the technology was too late to make the correction,” said Eric Mintz, co-portfolio manager at Eagle Asset Management. “With this downturn, we’re seeing valuations move into more reasonable territory.”
Wednesday’s US inflation data will be watched with interest as investors seek to forecast when the Federal Reserve will start raising borrowing costs. Monthly consumer prices are expected to rise more than 7% from the previous year for the first time since 1982.
Futures markets reflect a roughly 80% probability that the Federal Reserve will raise interest rates at its March meeting, according to data from exchange operator CME Group.
Investors are also looking ahead to corporate earnings season, which kicks off this week with results from US financial firms such as JPMorgan Chase and Citigroup.And
Wells Fargo and Black Rock.
Many investors were pouring money into bank stocks, believing that they could profit from higher interest rates.
Among them is Hani Reda, a multi-asset fund manager at PineBridge Investments. He said the New York-based investment firm reduced its ownership of technology stocks and Treasurys while boosting its cash holdings and exposure to financial firms.
“Stocks are down and bonds are down as well,” Mr. Raza said. “At least for a while, even cash is better than owning risky assets.”
Markets have also been shaken in recent weeks by the rapidly spreading Omicron variant of Covid-19. The seven-day average for newly reported coronavirus cases in the United States topped 700,000 for the first time over the weekend, according to data from Johns Hopkins University. Although the evidence suggests that Omicron is relatively mild, the growing number of cases has caused staff shortages in airlines, retailers, factories and other businesses.
Lululemon said Monday that its fourth-quarter earnings will slide toward the lower end of expectations, after Omicron caused hiring and capacity constraints during the holiday shopping season. The news sent the apparel maker’s shares down 2.9%.
In other company news, shares of Take-Two Interactive fell 15% after the video game maker agreed to buy Zynga in an $11 billion deal. Zynga shares rose 42%.
A favorite among retail traders, it lost 8.5%, having jumped last week on news that the video game retailer plans to enter the cryptocurrency and non-perishable token markets.
Bitcoin briefly fell below $40,000 for the first time since September. It recently traded at around $41,600, according to CoinDesk, down 1.7% from its price at 5 p.m. ET on Sunday.
In commodities, US natural gas prices rose 3.9% to $4.07 per million British thermal units. Cold weather in the Midwest and eastern United States early this week is likely to increase fuel demand, according to analysts at NatGas Weather.
Stock markets abroad were mixed. The Stoxx Europe 600 was down 1.5%, pulled down by real estate and technology stocks.
In Asia, the Shanghai Composite Index rose 0.4% and the Hang Seng Index in Hong Kong rose 1.1%. Japanese markets were closed for a public holiday.
Mark Andersen, head of asset allocation in the principal investment office at UBS Global Wealth Management, said he favors European, Japanese, energy and financial stocks.
“The Fed clearly wants to tighten financial conditions, and the way to do that is obviously by raising interest rates,” he said.
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