Stocks traded mixed, with the S&P 500 and Dow ending higher as Treasury yields steadied near multi-month highs.
The Nasdaq ended a choppy session lower, erasing some gains from earlier in the session. The index had closed out the regular session lower by 2.8%, posting its biggest drop since March.
The decline in technology stocks came as Treasury yields rapidly rose, with the swift move higher in borrowing costs pressuring valuations for growth and technology stocks.
“A lot of Big Tech is overpriced,” Teddy Parrish, CEO, and chief investment officer of Parrish Capital. “Those valuations are going to have to go a little lower in one of two ways: They either sell-off or earnings continue to go up and the stocks trade sideways. You can have a little of both, but to look at some of these larger tech companies that aren’t growing nearly as fast as their P/E [price-to-earnings] multiples might imply, I think that a lot of them are ahead of themselves.”
The yield on the benchmark 10-year note spiked to as much as 1.56%, or its highest level since June, before pulling back to just over 1.51%. The 10-year yield has also risen markedly over a relatively short period of time, gaining more than 16 basis points from its low to its peak.
Some strategists suggested the latest move lower may not spark a deeper drawdown or formal correction in the very near term. Cyclical sectors including energy and industrials outperformed, buoyed by rising commodity prices as heightened inflation expectations pushed up prices of everything from crude oil to cotton so far this week.
“I don’t think it’s the start of a correction necessarily, but certainly we’ve seen rotational corrections throughout the entirety of this year,” Art Hogan, National Securities Corporation chief market strategist, told market moves. “This feels much more like a realignment. So, obviously, we get strange machinations in the markets towards the end of a quarter.”
“We certainly have enough of a basket of concerns in general about the future, whether it’s inflation or how sticky that will be, the Fed’s tapering [and] what that might mean towards earnings and certainly what’s going on in Washington and what they can and can’t accomplish this week,” he added. “I think you bundle all that together with the yield on the 10-year that’s risen pretty significantly in a short period of time, and I really think it’s about the pace, not the ultimate level.”
In Washington, lawmakers are racing to pass legislation to fund the government beyond the end of the fiscal year. Republican lawmakers have balked at tying a continuing resolution to fund the government with a measure to raise the debt limit through the end of 2022, putting lawmakers at an impasse ahead of the deadline to avert a shutdown. This also comes alongside ongoing debates around a bipartisan $1 trillion infrastructure deal and a $3.5 trillion budget reconciliation package, with key actions on each of these also set to take place later this week.
“It is really important that we separate the shutdown, which is terrible, from the debt limit, which is catastrophic,” Jason Grumet, Bipartisan Policy Center president.”There could be, I think, a very short shutdown. And I think that you would then see a short continuing resolution to get the government running again.”
“The government shutdown isn’t really the problem we’re grappling with,” he added. “The problem we’re grappling with really is the debt ceiling. Democrats tried to join them together. That did not make the sale for Republicans. Some Democrats have a different approach to the debt ceiling. But I am not particularly concerned about a government shutdown.”
(Except for the headline, this story has not been edited by The Finance World staff and is published from a syndicated feed.)
