Technology stocks were recovering on Thursday after having sold off as bond yields surged back to their pandemic-era highs.
In midday trading, the
Dow Jones Industrial Average
was down 102 points or 0.3%, after the index dropped 392 points, or more than 1%, Wednesday. The
S&P 500
was up 0.1%, while the technology-heavy
Nasdaq Composite
added 0.3% after having dropped more than 1% earlier in the session.
The 10-year Treasury yield rose to as high as 1.75%, but remained just below that level, after closing Friday at 1.51%. Thursday’s rise comes a day after the Federal Reserve made clear that it will soon lift interest rates. The yield’s current level is its pandemic-era high, last achieved in March of 2021.
The central bank indicated in its December minutes, published Wednesday, that it will likely raises rates several times this year, starting in the next few months. The Fed is trying to fight recently high inflation, which seems to be sticking around.
The Fed minutes also revealed that it is considering shrinking its balance sheet. For now, the Fed is buying a lesser amount in bonds each month, but when it reduces its balance sheet, it will sell bonds. That could help bring bond prices down, lifting their yields. The bond market seems to be preparing for that.
That meant more pain for technology stocks. The Nasdaq has fallen about 6% below its all-time high, hit in late November. Higher bond yields make future profits less valuable—and many fast-growing tech firms are counting on big profits many years down the line.
But buyers stepped in to keep the price of tech stocks afloat by late morning.
One reason: the 10-year yield’s pause just under its pandemic-era high signifies that it may not yet be ready to shoot ever higher. “There’s resistance in the 1.75% area,” said John Kolovos, chief technical strategist at Macro Risk Advisors.
That means there’s a limit to how far tech stocks can keep falling for the moment. “With the Nasdaq, the expectation is to see a bounce” after falling as much as it has, Kolovos said.
Bitcoin and other cryptocurrencies continued to feel the pressure—but stabilized—after the leading digital asset sold off after the Fed minutes were released. Bitcoin was down as much as 9% before the losses moderated to 1% to $42,940, according to price data from CoinDesk. Ether fell 13% before that loss moderated to 4%. Cryptocurrencies are essentially long-term bets, which speculate that the currencies will have some measurable value far into the future, making their prices sensitive to changes in long-dated bond yields. So with yields pausing, it isn’t a surprising to see cryptos’ losses pause, too.
The Dow, home to more economically-sensitive stocks, has fallen in recent days, but not as much. The index is down just over 1% from its high, hit in the new year. Rate hikes could put a dent into economic growth.
Growth stocks may continue to see volatility as long as the markets remain uncertain about the Fed’s future plans. The Fed’s shift may “hurt growth [stocks] more than cyclical and defensive sectors,” wrote Tom Essaye, founder of Sevens Report Research.
The price of WTI crude oil rose more than 2% to over $80 a barrel. That sent the
Energy Select Sector SPDR
Exchange-Traded Fund (XLE) up 1.7%.
Overseas markets were closed before the minutes were released, so the response of traders in Europe and Asia was delayed until Thursday. Tokyo’s
Nikkei 225,
which analysts say has been closely correlated with the Nasdaq, dropped 2.9%. The pan-European
Stoxx 600
was 1.3% lower.
“The December FOMC minutes last night shattered the early year calm in financial markets,” said Jim Reid, a strategist at Deutsche Bank in the U.K.
“The shift in sentiment came against the backdrop of continued rises in sovereign bond yields,” Reid added. “There are a few other big questions outstanding, including how many rate hikes would take place before quantitative tightening begins and how Treasury and mortgage-back security holdings would be treated during runoff.”
Friday, the spotlight will fall on the December jobs report, with expectations for 422,000 jobs to have been added. Markets want to see that people are getting back to work at a brisk pace, but not so fast that the Fed becomes even more likely to tighten monetary policy quickly.
On Thursday, data showed weekly jobless claims rose to 207,000, higher than the expected 195,000 and worse than last week’s result of 200,000.
Still, other economic data will be more influential over market expectations on Fed policy. “The slight increase in jobless claims is unlikely to rock the boat—inflation is center stage when it comes to the Fed’s potential moves,” wrote Mike Loewengart, managing director of investment strategy at ETrade.
The consumer-price index is set to be released on Jan. 12.
Here are seven stocks on the move Thursday:
Crypto exchange
Coinbase
(ticker: COIN) was down 1% after a 6.4% fall Wednesday. It and other stocks linked to cryptocurrencies have felt the heat from a slide in digital asset prices.
Marathon Digital
(MARA) fell 1.3%, with
Riot Blockchain
(RIOT) slipping 4.3%; both stocks fell 12% to 13% Wednesday.
MicroStrategy
(MSTR) was down 2.4%.
Walgreens Boots Alliance
(WBA) stock initially rose, then fell 1.4% after the company reported a profit of $1.68 a share, beating estimates of $1.36 a share, on sales of $33.9 billion, above expectations for $32.9 billion. The company also raised its guidance.
Texas Roadhouse
(TXRH) stock gained 0.6% after getting upgraded to Buy from Neutral at UBS.
Target
(TGT) stock fell 0.2% after getting downgraded to Equal Weight from Overweight at Wells Fargo.
Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com
