(Reuters) – U.S. stocks slumped on Thursday with the Nasdaq on track to confirm correction territory, as Federal Reserve Chair Jerome Powell’s remarks failed to soothe market worries about a jump in longer-term U.S. bond yields.
The benchmark 10-year Treasury yield spiked to 1.533% as Powell did not comment on any changes in Fed’s asset purchases to tackle the jump. It still held below last week’s one-year high of 1.614%.
Investors were expecting that the Fed might introduce Operation Twist in which the central bank shifts its bond purchases to the long end of the yield curve from the shorter end.
“The market has been worried about the rise in long-term interest rates and the Fed chairman in his commentary didn’t really push back towards this increase in rates and the market took it as a signal that yields could rise further which is what has happened,” said Scott Brown, chief economist at Raymond James in Florida.
Wall Street’s fear gauge touched a near one-week high at 28.16 points.
The Nasdaq wiped out all of its year-to-date gains and was down about 10% from its record closing high on Feb. 12. If it closes at these levels, it would confirm correction territory.
In contrast, the Dow has fallen about 3.6% from its all-time closing peak on Feb. 24, while the S&P 500 is down 5% from its record close on Feb. 12.
“There is a fork in the road for markets which is best served with a correction … which is what we are seeing now as concerns of lofty tech valuations and elevated yield levels affect sentiment,” said Jason Ader, chief executive officer at SpringOwl Asset Management.
Latest data showed the number of Americans filing for jobless benefits rose last week, likely boosted by brutal winter storms in the densely populated South, though the labor market outlook is improving amid declining new COVID-19 cases.
The crucial monthly payrolls report is expected on Friday.
Wall Street’s main indexes fell in the past two sessions as a spike in U.S. bond yields pressured high-flying tech stocks while economy-linked stocks outperformed on hopes of a new round of fiscal aid and vaccinations.
The energy sector touched a one-year high on the back of higher oil prices. Apple Inc, Tesla Inc and PayPal Holdings Inc were among the top drags on the S&P 500. [O/R]
Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.
At 1:32 p.m. ET, the Dow Jones Industrial Average fell 391.55 points, or 1.23%, to 30,878.54, the S&P 500 lost 52.81 points, or 1.38%, to 3,766.91 and the Nasdaq Composite lost 278.05 points, or 2.14%, to 12,719.71.
Declining issues outnumbered advancers by a 3.5-to-1 ratio on the NYSE and by a 5.8-to-1 ratio on the Nasdaq.
The S&P 500 posted 28 new 52-week highs and no new lows, while the Nasdaq recorded 197 new highs and 291 new lows.
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