Traders on the floor of the New York Stock Exchange.
Source: New York Stock Exchange
Futures contracts related to major U.S. stock indices fell during Thursday night’s session after a rise in interest rates earlier in the day helped propel the Nasdaq Composite to its worst session since ‘October.
Dow futures fell 90 points after falling more than 100 points at the start of extended trading. Nasdaq 100 futures fell 0.5%, while S&P 500 futures lost 0.25%.
Expanded trade moves came after a negative regular trading session on Thursday.
The Dow Jones industrial average fell 559 points, or 1.8%, below a record high. The S&P 500 lost 2.5% to its worst day since Jan. 27, while the Nasdaq Composite, which used a lot of technology, lost 3.5% and suffered its biggest one-day sale since Oct. 28.
The momentum that brought the shares to all-time highs earlier this month has been resisted amid a sudden and sharp rise in bond yields. The U.S. 10-year Treasury bill rate soared briefly to 1.6% on Thursday before falling back to 1.52%, its highest level since February 2020.
Ten-year yields have risen more than 50 basis points since the start of the year, a rapid rise in a bond rate used as a benchmark for mortgage rates and car loans.
Economists and investment managers say the rate hike is an appropriate reaction from the bond market to a positive economy as vaccines develop and GDP forecasts improve, which should benefit profits. of companies.
But the high pace of the rise has also had the effect of diminishing investors ’appetite for areas of the market with a wealth of valuation. Thursday’s jump in 10-year yields also placed it above the dividend yield of the S&P 500, meaning that equities – which are considered riskier assets – have lost this fixed payment premium on bonds.
“Until recently, market participants were able to digest the long-term upward drift in interest rates, but it looks like the next rise in interest rates is a bigger bite to chew,” said Charlie Ripley, strategist at Allianz Investment Management senior investors said in an email.
“Looking at where real yields were, they were simply too low when considering growth expectations, and real long-term yields are likely to continue to decline as economic data improves,” he added.
Popular high-tech stocks, such as Alphabet, Facebook and Tesla, which started the year strong, fell 3.2%, 3.6% and 8% on Thursday. Apple, one of the largest companies in the world with a large amount of cash, has seen its shares fall by more than 15% over the past month.
Instead of technology, where companies tend to borrow more on average, investors are shifting money into so-called reopening trades, buying shares of companies that would benefit more from vaccine deployment and a return to travel trends. and regular meals.
Energy has gained 6.8% just this week, the biggest winner with high expectations that consumers around the world will soon drive and fly as before the Covid-19 pandemic. The industrial and financial sectors are the only two other sectors of the green week so far.
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