By Akane Otani and Anna Hirtenstein
The Dow Jones Industrial Average tumbled more than 550 points
Thursday as a wave of selling that began in the technology sector
took down swaths of the market.
Stocks' momentum has faltered the past week as investors have
faced a sharp and swift rise in bond yields. The yield on the
benchmark 10-year Treasury note marked its biggest one-day advance
since November and settled at its highest level in a year.
Money managers have broadly attributed the shift to bets on the
economy picking up, something that should be a boon to corporate
profits. But the swiftness with which yields have moved has also
had another effect: It has tempered enthusiasm for more richly
valued, risky parts of the market.
Investors rushed out of some of the hottest stocks of the year,
sending shares of companies like Apple, Alphabet and Netflix down
more than 2% apiece. Tesla shares dropped more than 8%.
While relatively cheap corners of the market appeared to hold up
well at first, with bank stocks and energy producers initially
higher for the day, those gains dwindled in afternoon trading,
leaving few places for investors to shelter.
The Dow dropped 559.85 points, or 1.8%, to 31402.01, pulling
back from Wednesday's all-time high. The S&P 500 shed 96.09
points, or 2.4%, to 3829.34, and the Nasdaq Composite lost 478.53
points, or 3.5%, to 13119.43, notching its biggest one-day pullback
"The market is jittery. The bond yields' rising is putting
equities, especially growth stocks, under pressure," said Sebastien
Galy, senior macro strategist at Nordea Asset Management. "There is
a bit of a risk reduction broadly."
Rising bond yields don't always auger poorly for stocks. In
fact, many investors are betting that a sweeping fiscal stimulus
package from the Biden administration, coupled with increasing
vaccinations, will help corporate profits across sectors improve in
the second half of the year. Roughly 91% of fund managers surveyed
by Bank of America believe the economy will strengthen this year,
the highest share on record since the firm began surveying
investors in the 1990s.
Labor Department data released Thursday showed the number of
Americans applying for unemployment benefits fell sharply last
And many contend that the recent weakness in technology shares
has been driven by money managers taking some risk off of the table
after a long run--not necessarily investors giving up wholesale on
the sector. Even after Thursday's declines, for instance,
Amazon.com and Netflix are up more than 50% over the past 12
months, more than doubling the S&P 500's gain over that
If the sustained rise in bond yields results in any long-lasting
change, many believe it will likely be that investors rethink the
balance in their portfolios between fast-growing technology
companies and more cheaply-valued sectors that have largely
underperformed over the past decade.
"It is a change of leadership," said Sophie Chardon, cross asset
strategist at Lombard Odier, who added that banks and oil producers
look particularly ripe to benefit from rising rates and growth. The
KBW Nasdaq Bank Index of lenders initially rose Thursday before
ending down 2.7%.
As the broader market tumbled, one group bucked the trend: "meme
stocks, " which have surged in popularity among individual
investors this year.
In a wave of volatility reminiscent of last month's rally,
GameStop jumped $17.02, or 19%, to $108.73, while AMC Entertainment
initially rose before trading down 80 cents, or 8.8%, to $8.29. The
two stocks had soared in overnight trading.
Many on Wall Street scrambled to identify a catalyst for the
sudden moves. Market observers said the run-up appeared to be the
result of renewed interest from investors that was likely
exacerbated by activity in the options market.
The moves show "there is still liquidity and a lot of access to
speculative bets," Ms. Chardon said. "We have to be prepared to
live with this kind of targeted bubble, but I wouldn't see it as a
threat to the global equity market."
Meanwhile, selling pressure in the bond markets picked up pace.
The yield on the 10-year Treasury note rose to 1.513% from 1.388%
Overseas, the pan-continental Stoxx Europe 600 edged down 0.4%.
Shares of beer maker Anheuser-Busch InBev fell 5.6% after its
fourth-quarter profit came in below estimates.
Investors also sold European government bonds, sending yields
higher. The yield on French 10-year bonds, which moves inversely to
the price, ticked up above zero for the first time since June and
reached as high as 0.024%.
In Asia, most major benchmarks finished the day up. The Shanghai
Composite Index added 0.6%, snapping a three-day losing streak, and
Hong Kong's Hang Seng Index climbed 1.2%.
South Korea's Kospi Index rallied 3.5% after its central bank
kept interest rates at historic lows, citing a need to continue
supporting the country's economy.
Write to Akane Otani at email@example.com and Anna Hirtenstein
(END) Dow Jones Newswires
February 25, 2021 17:19 ET (22:19 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.