By Christine Idzelis and William Watts
All three major U.S. stock benchmarks closed sharply lower Tuesday, with losses led by the technology-laden Nasdaq Composite Index, as the high-growth tech sector fell under pressure from climbing Treasury yields and investors began digesting a busy week for company earnings.
A blockbuster tech deal was also in the spotlight, after Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +2.10% said it had reached an agreement to acquire Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI +0.80% in an all-cash deal valued at $68.7 billion .
What did stock indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.09% dropped 543.34 points, or 1.5%, to close at 35,368.47.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.46% declined 85.74 points, or 1.8%, to end at 4,577.11.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.67% sank 386.86 points, or 2.6%, to finish at 14,506.90, below its 200-day moving average.
What drove markets?
Stocks dropped sharply as Treasury yields rose in anticipation of the Federal Reserve tightening monetary policy this year.
“We’re looking at a year of a totally different monetary environment,” said Sam Solem, portfolio manager for Intrepid Private Wealth, in a phone interview Tuesday. “Everyone is trying to digest what three to four Fed rate hikes look like this year.”
The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -2.04% rose 9.5 basis points Tuesday to 1.866%, the highest in about two years based on trading levels at 3 p.m. Eastern Time, according to Dow Jones Market Data. The yield on the 2-year Treasury note /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -1.64% , which is more sensitive to Fed policy expectations, shot up 7.3 basis points to 1.038% to reach the highest level since late February 2020.
Yield-sensitive tech and other growth stocks were weighing on the Nasdaq, but “it is not all doom and gloom out there, because M&A activity is going well, and the ongoing vaccination efforts by Western governments means the soft patch in U.S. and global data could be short-lived,” said Fawad Razaqzada, analyst at ThinkMarkets, in a note.
Information technology had the steepest decline among the S&P 500 index’s sectors Tuesday, according to FactSet data. Tech fell 2.5%, while the financial sector ended with the second biggest loss with a 2.3% slide.
Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS +2.34% on Tuesday said its fourth-quarter profit fell 13%, missing Wall Street estimates, in a choppy quarter for the Wall Street firm. Shares of Goldman closed about 7% lower, leading losses for the Dow.
In U.S. economic data, the New York Fed’s Empire State index of business conditions nosedived to -0.7 in January from 31.9 in the prior month, reflecting fresh strains from the omicron virus and ongoing supply-chain bottlenecks.
That’s a “big miss,” said Solem, and a “sign that growth is slowing.”
Crude-oil prices CL00 , meanwhile, traded at their highest level since 2014 amid unrest in the Middle East after Houthi rebels in Yemen launched a drone attack on a key oil facility in Abu Dhabi. The United Arab Emirates is OPEC’s third-largest producer.