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Dow Slumps as Bulls Scatter on Sudden Spike in U.S. Yields

Stock MarketsFeb 25, 2021 18:21
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© Reuters

By Yasin Ebrahim

Investing.com – The Dow slumped Thursday, paced by a rout in tech stocks as a sudden spike in U.S. government bond yields on fears of faster inflation spooked investors and prompted them to rein in their bullish bets on stocks.

The Dow Jones Industrial Average fell 1.53%, or 488 points. The S&P 500 was down 1.90%, while the Nasdaq Composite fell 2.60%.

Technology fell 3%, resuming its recent slump after reprieve a day earlier, as the U.S. 10-year jumped to a more than one-year high of 1.5%. Fears about rising inflation muddied the outlook for high-flying growth stocks. But with real rates, which takes into account inflation, still "negative," the overall environment for equities remains supportive, BlackRock (NYSE:BLK)'s Chief Investment Officer of Global Fixed Income, Rick Rieder told CNBC in an interview earlier Thursday.

Investors in growth stocks like tech, with high valuations, usually have to wait longer to recoup their investments, which is unattractive in an inflationary environment, where money today, is worth more than money in the future.

Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) were sharply lower.

Twitter, however, traded against the trend, rising 6% after the social media company set out plans to boost monetizable daily active users to 315 million by 2023 and double revenue in that year.

In a further sign that high-growth stocks have lost their luster, stay-at-home market darlings like Zoom Video Communications (NASDAQ:ZM), Peloton Interactive (NASDAQ:PTON) and DocuSign (NASDAQ:DOCU) were nursing heavy losses, down more than 5% each.  

The sharp pace of the uptick in rates has also sparked a jolt of volatility, pointing to underlying investor uncertainty, exacerbated by a renewed short-squeeze in shares of GameStop (NYSE:GME), which jumped 80%. The CBOE Volatility Index index, or VIX, jumped 25%.

Consumer stocks were also deeply in red on disappointing quarterly results, with Best Buy (NYSE:BBY) and Domino’s Pizza (NYSE:DPZ) down 10% and 8%, respectively.

Cyclicals like energy, financials and industrials, which tend to move in tandem with an improving economy were also shunned.

Energy, up more 3%, led the move higher in cyclical stocks as oil prices shrugged off an unexpected build in the crude stockpiles on expectations of a boost to demand from a stronger recovery.  

On the economic front, initial jobless claims dropped by a more than expected 111,000, to 730,000, while the U.S. fourth-quarter GDP was revised slightly higher to 4.1% from 4%.

Dow Slumps as Bulls Scatter on Sudden Spike in U.S. Yields
 

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David Hawley
David Hawley Feb 25, 2021 22:16
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Bond yields are rising because bond holders are selling them. Why should that worry stock market investors? They are worried that rising bond yields will lead to stock holders to sell because they offer better yields. If that was the case then why are they selling bonds? Its just big investors blaming a crisis which doesn't exist.
Maros Hucec
Maros Hucec Feb 25, 2021 22:16
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Big investors play a game, the crisis must be in a place how they would get a profit.
 
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