Tech Stocks Pare Losses as Fed Looks Dovish to Investors
February 23 2021 - 11:59AM
Dow Jones News
By Joe Wallace
Tech stocks rebounded from an early-morning rout Tuesday after
Federal Reserve Chairman Jerome Powell signaled that a central-bank
rate increase remains far off in the future, easing some concern
over rising interest rates.
The S&P 500 was down 0.6%, lower for a sixth consecutive
session as investors recalibrate their expectations for stocks with
bond yields climbing. The blue chip index earlier was down as much
as 1.8%.
The index, along with the Dow Jones Industrial Average and the
Nasdaq Composite, recouped some of their losses after Mr. Powell
said inflation remained soft, tamping down fears of a policy shift
by the central bank. In recent trading, the Nasdaq was down 1.7%
and the Dow down 0.4%.
Earlier, the Nasdaq dropped as much as 4% and investor favorites
such as Tesla Inc. and Moderna Inc. dropped by double digits, part
of what portfolio managers said was a rotation out of the
high-growth favorites in the past year and into more economically
sensitive stocks such as banks and manufacturers.
"The economy is a long way from our employment and inflation
goals," Mr. Powell said in prepared remarks for a hearing of the
Senate Banking Committee Tuesday morning.
Still, the six-day decline marks the S&P 500's longest
losing streak in a year.
A sharp rise in yields on U.S. government bonds in recent days
has sapped investors' appetite for riskier assets, including
stocks. Shares in technology companies, which have powered the
broader market higher for much of the past year, are seen as
particularly vulnerable, thanks to high valuations. Their profits
become less valuable in today's terms when investors apply a higher
discount rate, thanks to rising 10-year Treasury yields, recently
1.37%.
The rise in bond yields "naturally does cause investors and
cause markets to re-examine the view on equities," said Paul
Jackson, global head of asset allocation research at Invesco.
Investing in government bonds is beginning to look more attractive
for the first time in months, he said.
But "the level at which bond yields become truly problematic for
equities is a long way from where we are now," Mr. Jackson
added.
The yield on 10-year Treasury notes was at 1.371%, close to
where they settled on Monday. Yields, which rise as bond prices
fall, are lower than they were before the coronavirus pandemic sent
markets into a tailspin last year. Investors say it is the speed at
which yields have increased, rather than their level, that is
hurting stocks.
European Central Bank President Christine Lagarde on Monday said
the ECB was closely monitoring bond yields, comments interpreted by
analysts as a sign of discomfort with their recent rise. Mr. Powell
is unlikely to follow suit by pushing back on the rise in Treasury
yields, according to Remi Olu-Pitan, multiasset fund manager at
Schroders.
"At the moment, none of those indicators are flashing red --
they are not even amber yet -- but they are 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 2.8% after declining almost 9% on Monday. The move
came as the price of bitcoin slid about 8% to $48,506.40, according
to CoinDesk.
The latest bout of volatility in cryptocurrency markets followed
comments by Tesla Chief Executive Elon Musk, who said over the
weekend that prices for bitcoin and ethereum seemed high. The
electric-vehicle maker earlier this month disclosed that it had
bought $1.5 billion in bitcoin. Mr. Musk has also become a
prominent cheerleader for cryptocurrencies.
Shares of technology firms and other stocks that have performed
well during the pandemic came under pressure ahead of the opening
bell. Palantir Technologies extended its recent slide, losing 4.6%.
Payments firm Square fell nearly 3.9%. It is due to report earnings
after markets close, along with security-software company
McAfee.
Home Depot said growth could slow this year, knocking shares by
3.3% in recent trading.
Overseas, the Stoxx Europe 600 shed 1.3%, led lower by tech
stocks. HSBC shares fell 2% after the bank said it would invest an
extra $6 billion in Asia in the next five years and could sell its
U.S. retail operations.
In Asia, Hong Kong's Hang Seng climbed 1% and China's Shanghai
Composite Index slipped 0.2% by the close of trading.
--Michael Wursthorn contributed to this article.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
February 23, 2021 11:44 ET (16:44 GMT)
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