U.S. stocks fell on Tuesday, exacerbating Monday’s losses as technology shares retracted further while investors also assessed how a surge in bond yields and inflation prospects could affect high-flying growth names. The S&P 500 and Nasdaq fell sharply, dropping 1.5% and 3.1% respectively, indicating challenging investment climate.
Sharp rise in bond yields has swayed investors who are now more inclined towards less-risky government debt. The 10-year Treasury note yield ascended to 1.6%, elevating from less than 1% at the start of this year. This dramatic rise is causing distress among stock market investors.
Technology names that were big winners over the past year were noticeably weak. Apple, Tesla, and Amazon dropped over 2% each. Facebook, Netflix and Google-parent Alphabet also traded at least 1% lower. The tech sector declined over 2%, followed by energy as the biggest loser among the eleven S&P divisions. This is indicative of a bigger market correction in the tech-heavy sectors.
Analysts suggest this condition is a risk off scenario where investors are shifting their investment strategies to reduce risk, influencing the fall in tech stocks and overall market decline. They are now strategizing on safer blue chips and low-growth-value stocks. Many investors expect inflation to rise over the course of this year amid strong economic expansion, which may lead to increasing bond yields and cause a potential drop in stock specifically growth-oriented sectors like tech.
The CBOE Volatility Index, widely considered the best fear gauge in the market, jumped 10% to above 26. Concerns over rising bond yields additionally coincide with distribution of vaccines, and the widespread anticipation for a return to normalized business operation, further accelerating the shift from tech to more traditional industrial sectors.
Considering such dynamics, investors should remain cautious and seek balance in their portfolio between high growth tech-oriented stocks and traditional value stocks to hedge potential impacts from inflation and bond yield increases.
