By Mark DeCambre and Sunny Oh
Stock-market benchmarks finished sharply lower on Thursday, after a surge in bond yields inspired a bout of fierce selling in equities amid concerns over tighter borrowing conditions down the road.
Investors also fretted higher bond rates could sap the relative attractiveness of buying stocks to the benefit of fixed-income investments.
What did major indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.29% fell 559.85 points, or 1.8%, to 31,402.01, marking its biggest daily point and percentage drop since Jan 29.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.22% tumbled 96.09 points, or 2.5%, to end at 3,829.34, its biggest fall in over three weeks.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.72% slid 478.54 points, or 3.5%, to 13,119.43, booking its biggest one-day loss since September.
The small-cap Russell 2000 /zigman2/quotes/210598147/delayed RUT +1.68% declined 3.5%.
On Wednesday, the Dow rallied nearly 425 points, or 1.4%, to close at a record 31,961.86, while the S&P 500 rose 1.1% and the Nasdaq advanced 1%.
What drove the market?
A fresh advance in bond yields generated friction stocks, a day after the Dow carved out an all-time high.
Positive developments on the vaccine front and soothing words from Federal Reserve Chairman Jerome Powell in back-to-back rounds of testimony before Congress Tuesday and Wednesday had appeared to ease jitters over rising bond yields and tighter borrowing conditions that had previously rattled stock-market investors.
But on Thursday markets were whipsawed anew.
Esty Dwek, head of global market strategy at Natixis Investment Managers, said that rising rates were extending a rotation out of tech and into other areas that might perform better in an improving economic environment. She told MarketWatch that that shift was helping spark turbulence in the market.
“The rotation into cyclicals is continuing/accelerating, funded by profit-taking in the more growth sectors like technology,” said Dwek.
Meanwhile, the 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.82% surged above the 1.50%, later ending at 1.51%, up around 16 basis points since last Friday’s close. Yields and bond prices move in opposite directions.
The bond-market selloff was spurred inflation fears as fiscal stimulus and economic reopenings combined to induce intensifying price pressures.
“Investors are beginning to grasp there’s a bigger risk of inflation than before,” said Scott Clemons, chief investment strategist for Brown Brothers Harriman, in an interview.