Stocks are off to a mostly higher start as technology companies find their footing after a big sell-off a day earlier. The tech-heavy Nasdaq was up 1% in the early going Friday, having fallen 3.5% Thursday, its worst drop since October. The S&P 500 was up a more modest 0.3%. Much of the market’s focus has been on a sudden lurch higher in long-term interest rates in the bond market in recent weeks. While the sell-off in ultrasafe bonds reflects optimism about the economy, it also diminishes the appeal of holding stocks, which carries much more risk.
Shares skidded Friday in Europe and Asia while U.S. futures pointed to a subdued start to trading as investors sold off technology stocks and factored in a potential increase in inflation.
Tokyo’s Nikkei 225 index, which recently surpassed 30-year highs, sank 4% to 28,966.01. Declines in Europe were more modest.
A sell-off on Thursday on Wall Street picked up speed when the yield on the 10-year U.S. Treasury note exceeded 1.5%, a level not seen in more than a year and far above the 0.92% it was trading at only two months ago. That move raised the alarm that yields, and the interest rates they influence, will move higher from here.
Early Friday, the yield on the 10-year U.S. Treasury note was 1.46%.
The recent rise in bond yields reflects growing confidence that the economy is on the path to recovery, but also expectations that inflation is headed higher, which might prompt central banks eventually to raise interest rates to cool price hikes. Rising yields can make stocks look less attractive relative to bonds for some investors, which is why every tick up in yields has corresponded with a tick down in stock prices.
In the past, worries over a possible tapering off of the massive amounts of cash central banks have been pumping into economies have triggered sell-offs in what some call a “taper tantrum.”
Federal Reserve Chair Jerome Powell has affirmed the Fed’s commitment to low interest rates in testimony to legislators in Washington this week. Asian and European central banks also have insisted they are committed to supporting economies for the long haul. But still, investors are jumpy.
“It seems like traders and investors aren’t listening to official policymakers, and they have set their minds on one thing: interest rates will increase sooner rather than later,” Naeem Aslam of Avatrade.com said in a commentary.
“Another reality about the stock market is also that the massive stock rally that we have experienced so far seems to have run out of steam,” Aslam said.
The future contract for the S&P 500 rose 0.2% while the future for the Dow industrials inched 0.2% lower.
Germany’s DAX gave up 0.5% to 13,815 and the CAC 40 lost 0.8% to 5,735. Britain’s FTSE 100 fell 1.4% to 6,559.
In Asian trading, the Hang Seng in Hong Kong sagged 3.6% to 28,980.21. The Shanghai Composite index shed 2.1% to 3,509.08. South Korea’s Kospi declined 2.8% to 3,012.95. The S&P/ASX 200 slipped 2.4% to 6,673.30. India’s Sensex gave up 3% to 49,522.08.
On Thursday, the S&P 500 index fell % and the Dow Jones Industrial Average lost 1.8%. The tech-heavy Nasdaq slid 478.54 points: technology stocks, which tend to have higher valuations, are taking the brunt of selling as investors pursue higher yields from bonds.
Smaller company stocks fared even worse, with the Russell 2000 index of smaller company stocks down 3.7%.
Expectations for stronger growth were reinforced by news that t he U.S. economy grew at an annual pace of 4.1% in the final three months of 2020, slightly faster than first estimated. Higher government spending and accelerated vaccine distribution could lift growth in the current quarter, ending in March, to 5% or even higher, economists believe.
Economies in Asia are also on the mend, though rollouts of vaccines lag behind the U.S. effort and pandemic-related travel restrictions and quarantine requirements are still in effect for many countries.
In other trading Friday, U.S. benchmark crude oil shed $1.22 to $62.31 per barrel in electronic trading on the New York Mercantile Exchange. It gained 31 cents to $53.22 per barrel on Thursday. Brent crude, the international standard, gave up $1.09 to $65.02 per barrel.
The dollar rose to 106.25 Japanese yen from 106.20 yen on Thursday. The euro slipped to $1.2120 from $1.2177.