The stock market resumed its sell-off on Friday pressured by the continued weakness in high-flying tech names, while a better-than-expected jobs report failed to boost sentiment.
The S&P 500 fell 0.7% after gaining more than 1% earlier, on track to post its fourth straight losing day. The tech-heavy Nasdaq Composite fell 2.1% in the volatile session, pushing its 2021 losses to more than 3%. The Dow Jones Industrial Average dipped 90 points after climbing more than 300 points at its session high.
Tech shares with lofty valuations got hit by rising bond yields again, continuing the pattern this week. Higher rates decrease the present value of future cash flows, making long-duration assets less attractive. Tesla tumbled more than 12% and Peloton shares fell more than 8%.
The Nasdaq Composite has dropped nearly 6% this week, on pace for its worst weekly slide since March 2020 in the depth of the pandemic rout. The tech-heavy benchmark also fell into correction territory, or down 10% from a recent high, on an intraday basis.
“Right now, even after a 6% decline [on the Nasdaq], we’ve still got a ton of denial,” CNBC’s Jim Cramer said on “Mad Money.” “People don’t want to believe the sell-off is real. The market’s been so good for so long, and many newer investors have never seen this kind of pummeling, so the downdraft does seem pretty surreal.”
The U.S. 10-year Treasury yield popped above 1.6% to hit a 2021 high after data showing a surge in jobs growth. The spike in interest rates fueled fears that growth-oriented tech companies, which had led the market rally last year, may have a hard time living up to expectations if borrowing costs jump.
Pandemic winners Peloton and Zoom Video have slid 19% and 14%, respectively, this week. Red-hot investor Cathie Wood, who focuses on innovative companies, saw her flagship fund lose double digits this week and wipe out its 2021 gains.
The Labor Department on Friday reported nonfarm payrolls jumped by 379,000 for the month and the unemployment rate fell to 6.2%. That compared to expectations of 210,000 new jobs and the unemployment rate to hold steady from the 6.3% rate in January, according to Dow Jones.
Stocks that would benefit from a rapid economic comeback gained in the wake of the jobs report, providing the overall market with some cushion. The S&P 500 energy sector rose more than 1% as Occidental Petroleum gained nearly 6%. Some banks and many retailers jumped.
Friday’s moves followed a steep sell-off on Thursday triggered by Federal Reserve Chair Jerome Powell’s remarks on rising bond yields. The Fed chair said the recent runup caught his attention but he didn’t give any indication of how the central bank would rein it in. Some investors had expected Powell to signal his willingness to adjust the Fed’s asset purchase program.
The economic reopening could “create some upward pressure on prices,” Powell said in a Wall Street Journal webinar Thursday. Even if the economy sees “transitory increases in inflation … I expect that we will be patient,” he added.
“Equity investors, in our conversations, are really grappling with two things they may not have had to deal with for the last 10 years,” said Tom Lee, Fundstrat’s co-founder head of research. “One is the potential for inflation to actually have to be priced into equities. I think there’s a lot of confusion.”
“Then it’s a bond market that seems to be testing the Fed, which kind of scares people,” added Lee, who believes the sell-off this week is a buying opportunity.
— CNBC’s Maggie Fitzgerald contributed reporting
