U.S. stocks fell on Monday as a continuous rise in bond yields dented the appetite for risk assets, particularly growth technology stocks.
The Dow Jones Industrial Average dropped about 100 points. The S&P 500 lost 0.7%, led by tech and consumer discretionary. The Nasdaq Composite fell 1.6%.
Some equity investors grew concerned about rapidly rising Treasury yields in recent weeks as they could especially hurt high-growth companies reliant on easy borrowing while diminishing the relative appeal of stocks.
Tesla shares lost 3% following a 4% decline last week. Big Tech stocks came under pressure as Apple, Amazon, Microsoft, Netflix and Alphabet all traded at least 1% lower.
The 10-year Treasury yield jumped 14 basis points last week to 1.34%, near its highest level since February 2020. The benchmark yield hit a high of 1.37% before turning flat. So far this month, the benchmark rate has moved up 25 basis points. A basis point is 0.01%.
“This move in yields should be something that investors keep a close eye on,” Matt Maley, chief market strategist at Miller Tabak, said in a note. “Just because long-term rates are ultra-low on an historical basis, we do not believe that they will have to rise as far as most pundits think they do…before they impact the stock market.”
All eyes will be on Federal Reserve Chairman Jerome Powell, who delivers his semi-annual testimony on the economy before the Senate Banking Committee on Tuesday. His comments on rates and inflation could determine the market direction for the week.
On Monday, European Central Bank President Christine Lagarde said in a speech that the central bank is “closely monitoring the evolution of long-term nominal bond yields.” European sovereign bonds yields moved lower in response to her remarks.
Many on Wall Street still believe that the jump in bond yields reflects a sign of growing confidence in the economic recovery and stocks should be able to absorb higher rates amid strong earnings.
“We do not see the recent increase in yields as a threat to the bull market,” Keith Lerner, chief market strategist at Truist, said in a note. “Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities.”
Monday’s move came after the S&P 500 and the Nasdaq Composite snapped a two-week winning streak with a loss of 0.7% and 1.6%, respectively, last week. The blue-chip Dow eked out a 0.1% gain in the same period, supported by Caterpillar and JPMorgan.
The market is headed into the final week of February with solid gains. The Dow and the S&P 500 have risen more than 5% this month, while the Nasdaq has climbed 6.2%. The small-cap Russell 2000 outperformed with a 9.3% gain this month.
On the pandemic front, the White House said that it expects to ship out millions of delayed coronavirus vaccine doses this week after a sweeping winter storm disrupted logistics. Gov. Andrew Cuomo said on Sunday that a New York resident has tested positive for the Covid-19 variant first identified in South Africa.
Airline stocks rebounded after Deutsche Bank upgraded several of the shares. American Airlines jumped more than 7%.
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