By Mark DeCambre and Andrea Riquier
The Dow Jones Industrial Average skidded to a close below the 31,000 milestone Friday, while the Nasdaq Composite eked out a slight gain, capping a volatile week on Wall Street triggered by a spike in Treasury yields.
What did major indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.58% tumbled 469.64 points, or 1.5%, to finish at 30,932.37, after touching a session low at 30,911.37.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.31% lost 18.19 points, 0.5%, to close at 3,811.15, after briefly falling below its 50-day moving average at 3,808.60.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.92% added 72.91 points, or 0.6%, to 13,192.34, after touching a Friday nadir of 13,024 and closing below its 50-day moving average on Thursday.
For the week, the Dow lost 1.8%, the S&P 500 fell 2.5%, and the Nasdaq Composite was off 4.9%. That marked the Nasdaq’s biggest slide since the week ended Oct. 30, according to FactSet data. February was still a winning month, for equites, with the Dow up 3.2%, S&P 500 rising 2.6%, and the Nasdaq holding on to a gain of 0.9%.
What drove the market?
Friday was another turbulent day in stocks, capping a rough patch for financial markets that ended an otherwise solid month of gains.
A sudden acceleration of the Treasury market selloff on Thursday sent yields, which move in the opposite direction of bond prices, up sharply, triggering a stock market swoon that slammed highflying tech-related stocks particularly hard.
“There was a flash spike in the 10-year yield and that upset the apple cart, as higher yields are spooking the stock market,” said Ryan Detrick, chief market strategist at LPL Financial. “Could there be more inflation coming than what most think? Although the Fed isn’t worried about that, the market might be.”
The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% rose 13 basis points Thursday to finish at a more-than-one-year high at 1.51%. Yields pulled back Friday, with the 10-year rate down about 9 basis points to around 1.43%.
Rising yields can make bonds more attractive to investors relative to stocks, undercutting the longstanding “there-is-no-alternative” mantra among investors seeking yield with few other choices than equities, due to ultralow rates on government securities. Shares of tech companies, which tend to be heavier borrowers and have seen the most stretched valuations, are seen as particularly vulnerable to a rise in yields.
The selloff “is a perfectly rational reaction to the sense that we’re expecting higher inflation in the future,“ said Don Calcagni, chief investment officer for Mercer Advisors. “What I think was a little abnormal was yesterday’s move. That was a big move in a short period of time. This is the bond market reminding us that they have a say in what interest rates will be.“
In an interview with MarketWatch, Calcagni suggested investors should brace for more choppiness ahead.
“We already know that normalization will be a painful process,“ he said. “The question is how quickly do we go through it? If we can find a way to extend that process, with lots of small movements, we’ll be able to stomach the pain a bit better. What happened yesterday was not small. Financial markets today are very quick to adapt, and momentum shifts quite rapidly. Those two things are at odds with each other.“
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The move in rates unsettled investors earlier in the week, but market participants were temporarily soothed by testimony from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday. Powell said the economy remained a long way from recovery and indicated the central bank was committed to waiting until inflation tops its 2% target before moving to begin easing its own stimulus efforts.
“Investors clearly have a hard time buying into the Fed speak insisting that it’s too early to talk about tapering,” said Han Tan, market analyst at FXTM, in a note.