Stocks fell on Friday to extend losses after dropping during Thursday’s session, when another technology-led selloff dragged on the three major indexes.
The S&P 500 and Dow traded lower, while the Nasdaq outperformed and traded just a tick below the flat line. A day earlier, the Nasdaq slid by 3% for its worst session in three weeks as bond yields resurged. On Friday, the 10-year Treasury yield hovered little changed after reaching its highest level since January 2020 this week, as concerns over inflation reignited.
Traders have been considering whether a rapid rise in inflation later this year might take place and crimp the economic recovery, or spur a near-term shift in the Federal Reserve’s ultra-accommodative monetary policy. Federal Reserve Chair Jerome Powell attempted to quell markets’ fears over a near-term monetary policy move earlier this week, but the risks remain on the table in the eyes of many investors.
“Chairman Powell was pretty adamant, as he had been in front of Congress as well, that he was not really inclined to do anything preemptive about inflation, but react to it if inflation becomes a problem and if we’re at full employment. We’re a long way off from that, but the bond market now is getting nervous that we could see the inflation becoming a problem before the Fed does anything about it. And that’s the little bit of a freak out that we had been seeing in bonds, and that continued [Thursday],” Steve Sosnick, Interactive Brokers chief strategist, told Yahoo Finance.
For technology and growth stocks, the rise in rates, as traders price in both expectations of higher economic growth and higher inflation, has catalyzed an especially jarring rout. The tech-heavy Nasdaq has fallen 0.6% for March to date and is holding onto a year-to-date gain of just 1.8%, after surging by 44% in 2020.
“People didn’t really seem to mind that valuations were going up and up and up throughout much of the past 12 months. And that was largely because there was the money flowing in, there were steady earnings et cetera et cetera. And if you could divide steady earnings and steady cash flow essentially by zero, you could put an almost infinite valuation on those future flows,” Sosnick said.
“The problem is, if you start to discount those by ever-higher numbers,” – or as interest rates rise – “even though they’re still low by historical standards, that doesn’t give you much room if you’re priced to perfection,” he added. “It also means that in markets that have really outstripped their longer-term trends or their longer-term moving averages, there’s some room to go on the downside if the psychology remains as it is.”
Other strategists, however, adopted a more upbeat stance. Bank of America equity strategists Ajay Singh Kapur and Ritesh Samadhiya wrote in a note Thursday that they believed a “bullish cocktail” was still in place for equities. They suggested that investors might benefit by tilting toward both the cyclical and value stocks that have outperformed over the past several months, and by taking a “fresh look” at tech shares following the selloff triggered by rising rates.
“We think the three pillars of the bull market are firmly in place — massive free liquidity, an exceptionally strong EPS [earnings per share] growth cycle and substantial market breadth,” they wrote.
10:51 a.m. ET: Nike shares fall after fiscal 3Q sales miss estimates, driven by supply chain issues and store closures
Shares of Dow-component Nike (NKE) fell more than 4% on Friday after the company reported fiscal third-quarter sales that missed expectations, with supply chain issues in North America and ongoing pandemic-related store closures abroad weighing on results.
Fourth-quarter revenue totaled $10.36 billion, missing estimates for $11 billion. Beneath that headline, sales in North America – the company’s largest geographical segment – fell 11% to come in at $3.56 billion, missing estimates for $4.15 billion. This was partially offset by a 42% jump in sales out of Greater China, which came in at $2.28 billion for the quarter.
Our third quarter revenue performance was impacted by disruption related to the COVID-19 pandemic, particularly in North America and EMEA [Europe, the Middle East and Africa],” the company said in a statement.
The drop in North American sales was “largely driven by global container shortages and U.S. port congestion, which delayed the flow of inventory in the third quarter by more than three weeks, impacting timing of wholesale shipments, and partially offset by NIKE Direct growth of 15%,” the company added. “EMEA physical retail sales declined, as 45% of NIKE-owned stores experienced mandatory COVID-19 related closures for the last two months of the quarter, however this was partially offset by digital sales, which increased 60% Today, approximately 65 percent of stores in EMEA are open or operating on reduced hours.”
10:02 a.m. ET: Tesla shares drop after China reportedly restricts some Tesla use by military over security concerns
Shares of Tesla (TSLA) dropped more than 3% intraday on Friday after China reportedly banned some state and military personnel from using the company’s vehicles over national security concerns, according to reports from outlets including Bloomberg and the Wall Street Journal.
The concerns stemmed from Tesla’s built-in cameras inside of the vehicles, which the Chinese government was reportedly worried could be a source of data collection national security leaks.
“Given Tesla’s market share within China is increasing (as seen in the month of February) and EV demand is skyrocketing within this key region this move is not a complete shocker, although it clearly indicates ‘big brother is watching’ the situation closely. Tesla’s massive Giga footprint remains a major strategic advantage vs. other EV players (domestic and foreign) as we believe Tesla has potential to be on a 300k run rate of demand in China by the second half of this year,” Wedbush analyst Dan Ives wrote in a note Friday morning. “We will watching this situation closely as China remains the linchpin to the bull case thesis around Tesla for the coming years with this latest news a “contained situation” in our opinion for now.”
9:30 a.m. ET: Stocks open mixed, steadying after tech selloff
Here’s where markets were trading shortly after the opening bell on.Wall Street:
S&P 500 (^GSPC): -1.29 points (-0.03%) to 3,914.17
Dow (^DJI): -43.25 points (-0.13%) to 32,819.05
Nasdaq (^IXIC): +26.53 (+0.14%) to 13,139.20
Crude (CL=F): -$0.15 (-0.25%) to $59.85 a barrel
Gold (GC=F): +$2.50 (+0.14%) to $1,735.00 per ounce
10-year Treasury (^TNX): +0.8 bps to yield 1.737%
9:19 a.m. ET: Federal Reserve to let bank leverage exemption expire on March 31 without extension
The U.S. Federal Reserve announced on Friday that it will not extend a temporary bank leverage exemption past its March 31 expiration date, ending a pandemic-era rule that had made it cheaper for banks to maintain cash and bonds on their balance sheets.
Large banks had pushed for the central bank to extend this relief, or the supplementary leverage ratio (SLR), through the end of 2021, given that the Fed has signaled its aggressive quantitative easing program would continue and potentially make it more difficult for the banking industry to absorb U.S. government debt. The Fed noted Friday it would seek comments on “permanent” changes to the SLR.
“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability,” the Fed said.
7:17 a.m. ET Friday: Stock futures rise ahead of the opening bell
Here’s where markets were trading as of 7:18 a.m. ET Friday morning:
S&P 500 futures (ES=F): 3,930.00, up 13.5 points or 0.34%
Dow futures (YM=F): 32,960.00, up 80 points or 0.24%
Nasdaq futures (NQ=F): 12,72.25, up 76.75 points or 0.6%
Crude (CL=F): +$0.54 (+0.9%) to $60.54 a barrel
Gold (GC=F): +$3.70 (+0.21%) to $1,736.20 per ounce
10-year Treasury (^TNX): -2.9 bps to yield 1.7%
6:02 p.m. ET Thursday: Stock futures edge higher after tech rout
Here were the main moves in markets as of 6:02 p.m. ET:
S&P 500 futures (ES=F): 3,924.25, up 7.75 points or 0.2%
Dow futures (YM=F): 32,898.00, up 18 points or 0.05%
Nasdaq futures (NQ=F): 12,827.75, up 32.25 points or 0.25%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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