Stocks Slump as Bond Yields Hit Three-Month High – The Wall Street Journal

U.S. stocks tumbled Tuesday as rising bond yields deepened a rout in shares of technology companies.

The S&P 500 fell 1.5%, heading for a second straight day of losses. The tech-heavy Nasdaq Composite fell 2%, while the Dow Jones Industrial Average slipped 1%.

For much of the past decade, many investors had piled into shares of fast-growing technology companies, wagering they would deliver relatively robust profit growth even in a sluggish economic environment. This week, that trade hit a roadblock. Central banks are preparing to back away from the ultra-supportive monetary policies they put in place to buoy the economy through the worst of the coronavirus-driven downturn. That, in combination with other factors, has pushed Treasury yields to their highest level in months—in turn prompting a partial unwind of popular stock market trades.

“People are realizing, or at least remembering, that central banks are going to have to start raising rates,” said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. “The patient has become used to being given all these drugs, but soon those drugs are going to have to be reduced.”

Technology shares slumped Tuesday. Facebook, Amazon.com, Google parent Alphabet and Microsoft each lost more than 2% apiece.

Shares of energy companies bucked the trend, rising Tuesday on the back of higher commodity prices.

Schlumberger added 2.7%, while Marathon Oil rose 1.6%. Crude oil prices have hit multi-year highs this week, while natural-gas prices jumped to their highest level since late 2008 earlier Tuesday. Strategists have attributed the spike to a combination of rising demand and supply shortages.

The jump in commodity prices has ramped up some investors’ worries about short-term inflation pressures. Inflation tends to weigh on bond prices, since it erodes the purchasing value of their fixed payments.

The yield on the benchmark 10-year Treasury note looked poised to rise for a sixth consecutive day Tuesday, recently trading at 1.548%, compared with 1.482% Monday. Bond yields rise as prices fall.

Higher yields drew investors into the U.S. dollar, which was higher against every other major currency, from the euro to the Swiss franc. The ICE Dollar Index, which tracks the currency against a basket of others, rose for a third consecutive day. It was up 0.3% at 93.68, its highest level since November.

“I’m struggling to see how we come out of this latest Treasury selloff without a spike higher by the dollar,” said Kit Juckes, a currency strategist at Société Générale.

Overseas, European markets slumped, while Asian indexes were mixed.

The pan-continental Stoxx Europe 600 fell 1.3%, led by losses among tech stocks.

In Hong Kong, signs of support from China’s central bank helped boost beaten-down shares of Chinese real-estate developers. The People’s Bank of China said late Monday it would “maintain the healthy development of the property market and safeguard the legitimate rights and interests of house buyers.”

Shares of Country Garden Holdings, China Vanke and China Overseas Land and Investment all jumped between 5% and 6%. China Evergrande Group, the ailing real estate giant that has fallen behind on a payment to international bondholders, rose more than 4%. The city’s flagship Hang Seng Index rose 1.2%.

Sunac China Holdings surged almost 15%, snapping two days of steep declines, after the property company played down a leaked plea for help from a local government, and said sales were good.

In Japan, the Nikkei 225 edged down 0.2% while in mainland China, the Shanghai Composite Index rose 0.5%. 

Some investors are recalibrating portfolios to prepare for the gradual end of ultra-easy monetary policies.

Photo: brendan mcdermid/Reuters

—Xie Yu and Frances Yoon contributed to this article.

Write to Will Horner at william.horner@wsj.com

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