Technology stocks tumbled on Monday as government bond yields continued to rise, signaling that investors expect the Federal Reserve to move quickly in raising interest rates.
The S&P 500 slid 1.6% on Monday, on track for its fifth consecutive day of losses. The Dow Jones Industrial Average fell 1.4%, or about 510 points.
The tech losses came as the yield on benchmark 10-year Treasury notes—which moves inversely to their price—rose to 1.789% Monday from 1.769% Friday. Friday’s closing level was the highest since January 2020, before the start of the pandemic.
Surging yields have sent a shudder through tech stocks. By selling bonds and sending yields higher, investors are indicating that they believe the Fed could raise short-term interest rates in March and begin to shrink its holdings of bonds and other assets soon afterward.
Low rates helped fuel a huge rally in tech stocks last year, by making bonds less attractive and spurring investors to buy risky assets. But as the Fed has pivoted to fighting inflation, tech stocks have lost some of their luster. The prospect of higher rates also reduces the value that investors see in the future cash flows of fast-growing tech companies, hurting their share price.
“Clearly, tech was overdue for a correction,” said Eric Mintz, co-portfolio manager at Eagle Asset Management. “With this pullback, we’re seeing valuations move into more reasonable territory.”
U.S. inflation data due Wednesday will be keenly watched as investors seek to predict when the Fed will begin to raise borrowing costs. Monthly consumer prices are expected to have risen more than 7% from a year earlier for the first time since 1982.
Earnings season kicks off at major U.S. financial firms later this week, with JPMorgan Chase, Citigroup, Wells Fargo and BlackRock due to file results for the final quarter of 2021. Many investors have been pushing money into bank stocks, figuring they stand to profit from a rise in interest rates.
Among them is Hani Redha, a multiasset fund manager at PineBridge Investments. He said the New York-based investment firm has cut its ownership of tech stocks and Treasurys while boosting cash holdings and exposure to financial companies.
“Equities are down and bonds are down too,” Mr. Redha said. “At least for a while, even cash is better than owning risk assets.”
Lululemon declined 4.9% after saying that fourth-quarter earnings would fall toward the low end of forecasts. The apparel maker cited staffing and capacity constraints caused by the Omicron variant of Covid-19.
Shares of GameStop, a favorite among individual traders, lost 12%, having jumped last week after The Wall Street Journal reported that the videogame retailer planned to enter the nonfungible tokens and cryptocurrency markets.
In commodities, U.S. natural-gas prices rose 3.3% to $4.04 per million British thermal units. Cold weather in the Midwest and eastern U.S. early this week will likely boost demand for the fuel, according to analysts at NatGas Weather.
Overseas stock markets were mixed. The Stoxx Europe 600 fell 1.5%, weighed down by shares of real estate and tech companies.
In Asia, the Shanghai Composite Index added 0.4% and Hong Kong’s Hang Seng rose 1.1%. Japanese markets were closed for a public holiday.
Mark Andersen, head of asset allocation at UBS Global Wealth Management’s Chief Investment Office, said he favors European and Japanese stocks and shares of energy and financial companies.
“It’s clear the Fed wants to tighten financial conditions and the means to do that is obviously to get interest rates higher,” he said.
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