Tech Stocks Poised to Decline as Bond Yields Rise
By Anna Hirtenstein
U.S. stock futures dropped Monday and a selloff in U.S.
government bonds extended into its sixth week after progress toward
a new fiscal stimulus bill brightened economic prospects and sapped
demand for technology stocks.
Futures linked to the S&P 500 slipped 0.6%, suggesting that
the broad market may decline after the opening bell. The benchmark
ended Friday up 0.8% for the week, following a volatile week in
which investors rotated out of big technology stocks. Nasdaq-100
futures fell 1.6% at the start of the new week, pointing to tech
stocks extending losses.
In the bond market, the yield on benchmark 10-year US. Treasurys
rose to 1.610% as investors moved funds out of assets considered to
be the safest in the world. Yields rise when bond prices fall. It
had ended Friday at 1.551%, its highest since February 2020.
President Biden's $1.9 trillion Covid-19 relief plan was
approved in the Senate over the weekend, and faces a vote in the
House as early as Tuesday. The additional fiscal spending is
expected to bolster the pace of economic recovery and boost
inflation. As the outlook brightens, money managers are moving out
of government bonds and technology stocks, and into sectors such as
banks and energy that are likely to rebound with the economy.
"Stimulus checks into people's bank accounts will be a big
propeller of growth, given the consumer in the U.S. makes up such a
big part of U.S. growth," said Shaniel Ramjee, a multiasset fund
manager at Pictet Asset Management. "The underlying strength of the
U.S. economy, growing expectations that the stimulus gets fully
passed, plus inflation expectations rising because of oil: these
are all likely to continue to push bond yields higher."
Tech stocks have been retreating in recent weeks as vaccination
programs advance and economic data point to the recovery being
under way. The Nasdaq Composite Index declined over 2% last week,
losing ground for a third consecutive week. That is because
investors are betting that the largest media, communications and
online-shopping companies will see a slower pace of growth as
pandemic lockdowns end.
"The main market element is what's happening in the yield
market: The U.S. tech side is suffering from the current
normalization in the cost of capital," said Samy Chaar, chief
economist at Lombard Odier. "The market is currently acknowledging
that we're in a recovery. Flows are rebalancing to better reflect
this cyclical recovery."
Overseas, the pan-continental Stoxx Europe 600 rose 0.6%, led by
banking stocks. Europe's stock market is benefiting from investors
rotating into value stocks, analysts said.
European government bond yields also continue to tick up, with
Germany's benchmark 10-year yield rising to minus 0.284%, from
minus 0.295% on Friday. Investors are awaiting a European Central
Bank meeting later this week for indications of whether it will act
to temper financing conditions.
In Asia, most major benchmarks fell by the close of trading. The
Shanghai Composite fell 2.3% and Hong Kong's Hang Seng Index
declined 1.9% as investors grappled with signs that Chinese policy
makers will take more action to rein in debt and prevent asset
bubbles from forming.
Bitcoin traded around $50,600 on Monday, rising nearly 4% from
Friday evening, according to data from CoinDesk.
Write to Anna Hirtenstein at firstname.lastname@example.org
(END) Dow Jones Newswires
March 08, 2021 05:54 ET (10:54 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.