Stocks traded mixed on Wednesday, 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 Tuesday’s 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, told Yahoo Finance on Tuesday. “Those valuations are going to have to go a little lower in one or 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% Wednesday morning. The 10-year yield has also risen markedly over a relatively short period of time, gaining more than 16 basis points from its low from last Friday to its peak on Tuesday.
Some strategists suggested the latest move lower on Tuesday 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 Yahoo Finance of Tuesday’s market moves. “This feels much more like a realignment. So, obviously we get strange machinations in the markets towards the end of a quarter and that’s knocking on the door tomorrow.”
“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 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 on Thursday. 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 a Thursday night deadline to avert a shutdown. This also comes alongside ongoing debates around a bipartisan $1 trillion infrastructure deal and $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, told Yahoo Finance on Tuesday. “There could be, I think, a very short shutdown of the government Friday night going into Saturday, Sunday. 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 on the debt ceiling. But I am not particularly concerned about a government shutdown.”
4:04 p.m. ET: Stocks end mixed as Treasury yields steady; Dow adds 91 points, or 0.3%
Here were the main moves in markets as of 4:04 p.m. ET:
S&P 500 (^GSPC): +6.83 (+0.16%) to 4,359.46
Dow (^DJI): +90.73 (+0.26%) to 34,390.72
Nasdaq (^IXIC): -34.24 (-0.24%) to 14,512.44
Crude (CL=F): -$0.62 (-0.82%) to $74.67 a barrel
Gold (GC=F): -$12.30 (-0.71%) to $1,725.20 per ounce
10-year Treasury (^TNX): +0.7 bps to yield 1.5410%
12:20 p.m. ET: ‘Yesterday’s selloff was really largely driven by rate movement’: CIO
A number of strategists pointed to the speed of the jump in Treasury yields, rather than the absolute level of rates, as the key factor triggering Tuesday’s tech-led selloff in U.S. equities.
“Yesterday’s selloff was really largely driven by rate movement,” Timothy Chubb, chief investment officer for wealth advisory firm Girard, told Yahoo Finance Live on Wednesday. “It wasn’t necessarily the size of the rate movement, [but it was] really the speed that it took place.
“This move taking place over the last 10 days actually was two standard deviations from the mean,” Chubb added. “As has been typical in history, when we see rates rise, the correlation of a steepening yield curve and higher rates on the longer end and through the belly of the [yield] curve that we’ve seen in the last week, [it] tends to bode very well for a lot of cyclical growth assets.”
10:42 a.m. ET: ‘The market is testing the resolve of lawmakers to do the right thing’: Portfolio Manager
Sparring among lawmakers in Washington, D.C., over government funding and raising the debt ceiling have been a central concern for markets over the past couple weeks, compounding with existing jitters over the outlook for inflation, supply chain constraints and the trajectory of coronavirus infections.
“There’s a reason why September’s one of the worst months for the markets, and one of those reasons is because that’s when the end of the fiscal year is for the U.S. government,” Diane Jaffee, TCW Group senior portfolio manager, told Yahoo Finance Live on Wednesday. “There’re always a lot of power plays and brokering and brinkmanship. And that’s 100% true, since everything is really focused on some of these bills here this week.”
Despite the near-term concerns on Capitol Hill, however, the backdrop for equities still appears to be solid, Jaffee maintained.
“It’s not abnormal to have market corrections, three or four short spurts downwards of 3-5% in any calendar year,” she said. We’ve gone several months without anything really hectic, and that’s because we’ve got this tremendous monetary and fiscal stimulus holding us up, being a booster. So while I think there is some nail-biting going around … this lift from the stimulus is really supportive going into 2022. So yes there will be some waves along the way, but the trajectory we think is quite positive for stocks.”
“The market is testing the resolve of lawmakers to do the right thing. A correction is typically 5-10%,” she added. “We’re not there yet but we’re bouncing along here. I believe that we are going to come out the other side of even just this week in a better way.”
10:00 a.m. ET: Pending home sales far exceed expectations in August, rebounding from July dip
Home contract signings jumped far more than expected in August, rising for the first time in three months as improving inventory levels helped partially offset elevated prices and brought more buyers back into the market.
Pending home sales rose 8.1% in August month-on-month, according to the National Association of Realtors. This exceeded estimates for a 1.4% monthly rise, based on Bloomberg consensus data. In July, pending home sales fell by 2.0%, with this figure downwardly revised from the 1.8% drop previously reported.
“Rising inventory and moderating price conditions are bringing buyers back to the market,” Lawrence Yun, NAR’s chief economist, said in a press statement. “Affordability, however, remains challenging as home price gains are roughly three times wage growth.”
Even after the August jump, pending home sales were still down 6.3% on a seasonally unadjusted basis compared to last year, when low interest rates and demand for more space pushed up sales. However, this was better than July’s 9.6% year-over-year drop in contract signings.
9:30 a.m. ET: Stocks open higher as Treasury yields pull back
The three major indexes held onto overnight gains to open higher Wednesday morning, buoyed by some moderation in Treasury yields.
The Nasdaq opened higher by about 0.5%, recouping some of its 2.8% drop on Tuesday. The S&P 500 and Dow also traded in the green.
U.S. crude oil prices gave back some recent gains, dropping 0.7% to trade below $75 per barrel. Brent crude also pulled back from a three-year high reached earlier this week.
7:24 a.m. ET Wednesday: Stock futures recover some losses after Nasdaq’s worst day since March
Here’s where markets were trading Wednesday morning:
S&P 500 futures (ES=F): +24 points (+0.55%), to 4,367.5
Dow futures (YM=F): +165 points (+0.48%), to 34,340.00
Nasdaq futures (NQ=F): +13.5 points (+0.09%) to 14,778.25
Crude (CL=F): -$0.44 (-0.58%) to $74.85 a barrel
Gold (GC=F): +$6.30 (+0.36%) to $1,743.80 per ounce
10-year Treasury (^TNX): -2.3 bps to yield 1.513%
6:15 p.m. ET Tuesday: Stock futures edge higher
Here were the main moves in markets as of Tuesday evening:
S&P 500 futures (ES=F): +7.5 points (+0.17%), to 4,351.00
Dow futures (YM=F): +76 points (+0.22%), to 34,251.00
Nasdaq futures (NQ=F): +13.5 points (+0.09%) to 14,778.25
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter