Tech stocks dragged the S&P 500 lower on Wednesday amid rising bond yields, while names tied to an economic recovery provided some support to the market.
The S&P 500 was down 0.8% while the Nasdaq Composite was down 1.6%. The Dow Jones Industrial Average rose 40 points, helped by Boeing stocks rising 3%.
The weakness came as the 10-year government bond yield extended its gains. The benchmark interest rate rose more than 8 basis points to 1.49% on Wednesday after rising to a high of 1.6% last week in what some referred to as a “flash” spike. The steady rise in bond yields raises concerns about equity valuations and a rebound in inflation.
“Interest rates are just not going to pause for this market,” said Jim Cramer on CNBC’s Squawk Alley.
Higher bond yields can hit technology stocks especially hard as they rely on simple borrowing for superior growth.
President Joe Biden said late Tuesday that the U.S. will have sufficient supplies of coronavirus vaccines to vaccinate every adult in the nation by the end of May. That would be two months earlier than planned. The introduction of vaccines is seen as a key element in getting Americans back to work and the economy recovering.
Growing optimism about the vaccine launch sparked a rally in cyclical stocks and the reopening of the Games. American Airlines grew 4%, while Carnival and Norwegian Cruise Line grew 6% each. The energy sector rose by 2%.
“While the S&P 500 may face structural headwinds due to technical weaknesses, the rest of the market is actually doing reasonably well,” Tom Essaye, founder of Sevens Report, said in a note. “Overall, most non-tech stocks are weathering the rise in bond yields quite well.”
On the data front, private companies created 117,000 new jobs in February, according to a report by payroll firm ADP on Wednesday. Economists polled by Dow Jones expect 225,000 private jobs to be created in the past month.
Meanwhile, the rate of growth on the service side of the US economy slowed in February. The ISM Nonmanufacturing Index showed a value of 55.3 last month, a decrease of 3.4 percentage points from January and below the Dow Jones estimate of 58.7.
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