News: S&P 500, Nasdaq drop as tech stocks slip ahead of Fed.
(Reuters) – The S&P 500 and Nasdaq fell on Wednesday as US bond yields rose ahead of the Federal Reserve’s policy statement, which could provide clues as to whether the central bank would raise interest rates earlier than expected.
The benchmark’s 10-year return hit a new 13-month high of 1.676%, dragging demand for high-growth technology stocks and putting pressure on tech-intensive Nasdaq by around 1%.
Fears that massive stimulus could overheat the economy has sparked a rapid spike in long-term government bond yields, holding Wall Street major indices off their highs last month.
The Fed is expected to release a GDP forecast for 2021 at the end of a two-day meeting on Wednesday at 2 p.m. CET (1800 GMT). The meeting will be followed by Fed Chairman Jerome Powell’s press conference, at which he will likely assure that the economy can take off without creating excessive inflation.
While the Fed has reiterated that it will remain cautious until the labor market fully rebounds, some policy makers may point to a rate hike in 2023. Some investors and economists are betting on interest rate hikes even earlier, with Morgan Stanley predicting an early tightening of monetary policy next year.
“I don’t think investors believe the Fed will change their stance, but there are concerns that inflation will rise in the near future,” said Arthur Weise, chief investment officer at Kingsland Growth Advisors in New York.
“The market believes the 10-year yield could be higher and if the Fed signals something to do with that view, yields could exceed the 2% mark.”
The S&P 500 and Dow started the week at all-time highs, while the Nasdaq has made up more than half of its losses since confirming a correction in optimism over the recent round of fiscal stimulus and vaccinations last week.
At 9:43 a.m. ET, the Dow Jones Industrial Average rose 87.87 points, or 0.27%, to 32,913.82, the S&P 500 lost 16.59 points, or 0.42%, to 3,946.12, and the Nasdaq Composite lost 164.51 points or 1.22% to 13,307.06.
Apple Inc, Facebook Inc, Netflix Inc and Microsoft Corp were down between 0.6% and 1.2% as the rotation of soaring companies continued into last year’s latecomers, including financials, industrials and materials.
The banking index and airlines, which are expected to benefit from a re-opening economy, gained more than 1%.
“The game is valuable … as the economy picks up, there is much greater leverage in earnings growth for cyclical companies,” said Eric Diton, president and chief executive officer of the Wealth Alliance in New York.
Fast food retailer McDonald’s was up nearly 1.5% after Deutsche Bank raised its target price for the stock and improved its “buy” rating from “hold”.
Declining issues outperformed advanced with a ratio of 1.6 to 1 on the NYSE and a ratio of 2.9 to 1 on the Nasdaq.
The S&P 500 made 13 new 52-week highs and no new lows, while the Nasdaq made 41 new highs and 25 new lows.
Reporting by Shashank Nayar and Medha Singh in Bengaluru; Adaptation by Maju Samuel
Original Source © Reuters