Dow retreats from record while surge in bond yields sends Nasdaq down 3%

Stocks finished sharply lower Thursday as another jump in U.S. Treasury yields reflected expectations for faster economic recovery and inflation, fueling more rotation into sectors likely to benefit from the reopening , rather than technology stocks that benefited from last year’s work-from-home trend.

Meanwhile, energy sector stocks also slumped as crude oil futures fell 7%, suffering the biggest one day loss since September as some European countries battle a third wave of the coronavirus pandemic and a slow vaccine rollout, implying less travel and lower energy demand this summer.

What are major indexes doing?
  • The more cyclically-tilted Dow Jones Industrial Average

    fell 153.07 points, or 0.5%, to end at 32,862.30, after trading at an intraday record in earlier activity.
  • The S&P 500

    was down 58.66 points, or 1.5%, to finish at 3,915.46.
  • The Nasdaq Composite

    slumped 409.03 points, or 3%, to close at 13,116.17.
  • The Russell 2000

    slipped 3%.

Stocks rallied Wednesday after the Federal Reserve vowed it would maintain easy monetary conditions. The Dow closed above the 33,000 milestone for the first time, while the S&P 500 also closed at a record and the Nasdaq Composite reversed a decline to end solidly higher.

What’s driving the market?

Equities were under pressure Thursday as investors handled the twin threat of rising bond yields and falling energy prices.

On Wednesday the Federal Reserve sharply raised its forecast for economic growth and again said policy makers want to see inflation above its 2% target, accompanied by significant improvement in the labor market, before it will begin raising interest rates or pulling back on its program of asset purchases.

Read: What we learned — and what we didn’t — from Jerome Powell’s press conference

Check out: The Fed is dovish but bond yields are soaring. What gives?

Long term U.S. bond yields have risen in the past six weeks as economic data have improved and the $1.9 trillion fiscal stimulus bill combined with the Fed’s easy money policy has raised the specter of inflation. On Thursday the yield on the 10-year Treasury note

rose to its highest level in more than a year.

The 10-year yield jumped around 9 basis points Thursday to end at 1.730%, hitting a 14-month high.

While rising yields can be problematic for stocks viewed as expensive according to metrics like price-to-earnings, stock-market bulls have insisted that the prospects for an economic growth rebound that has contributed to the increase in bond yields reflect a positive backdrop for the market.

“Rates going up now is a positive. It shows the economy is normalizing,” said Frank Rybinski, chief macro strategist at Aegon Asset Management, in an interview.

He noted the rise in bond yields was drawing a movement away from technology shares into equities of more growth-sensitive industries. Indeed, though equities were seeing broad losses on Thursday, cyclical stocks were holding up the best.

“We continue to see this broadening out of the rally. If tech has a cooling and consolidation phase, industrials and more cyclical stocks do a little more catch up here, that’s a pretty healthy base going forward,” said Rybinski.

Energy shares, however, struggled to enjoy the fruits of this rotation amid a sharp slide in U.S. crude prices. Energy-related constituents of the S&P 500 index fell 6.2%.

Meanwhile in U.S. economic data on Thursday, jobless benefit claims rose to the highest level in a month, up by 45,000 to 770,000 in the week ended March 12.

The Philadelphia Fed’s March manufacturing index unexpectedly jumped to 51.8 from a reading of 23.1 in February. The leading economic index rose 0.2% in February, the Conference Board said.

Which companies are in focus?
  • Shares of Dollar General Corp.

    fell 4.7% after reporting earnings that fell short of expectations.
  • Accenture PLC

    shares rose 1% after the company topped earnings and revenue forecasts and raised its outlook, while also increasing what it will return to shareholders and announcing a bonus for employees.
  •  Shares of Lordstown Motors Corp.

    were down 13.8% after the electric-truck maker late Wednesday reported a wider quarterly loss late Wednesday, reiterating its goal of making its first electric pickups by late September despite a continuing spat with a short seller. The company also disclosed a probe by securities regulators.
  • Duckhorn Portfolio Inc.

    shares slid as it made its debut as a public company. The stock of the Napa Valley winery was down 14.5% from their initial public offering price at Thursday midday. See: 5 things to know about Napa Valley’s Duckhorn wine IPO
How are other markets trading?

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