Nasdaq Falls 2.7% as Bond Yields Rise

03/03/2021 | 04:17pm

By Will Horner and Amber Burton

U.S. stocks fell Wednesday with technology stocks dropping sharply and government bond yields ticking higher.

The S&P 500 fell 1.3%. The Nasdaq Composite fell 2.7%, the second consecutive decline for the tech-heavy index. The Dow Jones Industrial Average held up better, edging down 0.4%, or 119 points.

The yield on the 10-year U.S. Treasury note rose to 1.47% from 1.413% Tuesday -- still off from Thursday's high of 1.513%. Yields rise when bond prices fall.

Stocks have been jittery in recent days, with the major indexes wavering between losses and gains. Some money managers have grown concerned that stimulus measures will lead to a spike in inflation and erode the value of bond returns. Worries about inflation have also triggered bets that the Federal Reserve may start to boost interest rates in the next two years.

"It's general nervousness about the rise in interest rates," said Tom Martin, senior portfolio manager at Globalt Investments, about the jittery stocks. "Clearly today we're back at favoring value over growth and that makes sense in the context of today's change in interest rates."

Top central bank officials have said the rise in yields reflects optimism about economic prospects and that they plan to keep monetary policy loose to support the economy for the foreseeable future. Federal Reserve Gov. Lael Brainard said Tuesday that the recent tumult in the bond market is on her radar. She said she would be concerned if she "saw disorderly conditions or persistent tightening."

"This higher volatility is to be expected," said Seema Shah, chief strategist at Principal Global Investors. "What has taken us unawares is the timing of it because most people were expecting to see these issues come later in the year, or early next year."

Sentiment was briefly buoyed earlier in the day by signals that Democrats will seek to bridge differences over jobless benefits and other issues as they aim to complete a $1.9 trillion relief package in coming days. President Biden also said the U.S. would have enough Covid-19 vaccines for all American adults by the end of May, two months earlier than he had previously said.

"The vaccine rollout is going extremely well compared to many expectations," said Mrs. Shah. "And at a time when it looks like the economy could recover on its own, we also have the prospect of fiscal stimulus in the background, and it is leading many people to upgrade their U.S. growth expectations."

Optimism about the better economic prospects is particularly fueling demand for shares in companies that would benefit when the economy returns to normal, said Chris Dyer, director of global equities at Eaton Vance. That includes banking and energy stocks, which are outperforming the technology sector this year.

"We can see light at the end of the tunnel of the pandemic," Mr. Dyer said. "The progress that has been made on vaccinations has led to confidence in the economic recovery and you have seen companies geared into that economic recovery do well in the last months."

Ms. Brainard on Tuesday signaled that the Federal Reserve won't dial back support for the economy until it is on a stronger footing, reiterating comments made by other officials.

"The Fed has indicated very strongly that they are willing to be patient, but also [that] the rising yields are an indication of strong growth, so that is a good environment for equities to be in," Mrs. Shah said.

In company news, Lyft rose 9.6% after the ride-sharing company disclosed strong February ride figures late Tuesday. Competitor Uber also rose almost 5%.

Data on activity in the services sector from the Institute for Supply Management showed the services sector activity expanded for a ninth consecutive month in February.

The Fed's beige book report, due at 2 p.m. ET, will offer the latest collection of business anecdotes, offering insights into how companies are gearing up for the reopening of the economy.

In commodity markets, Brent crude, the international benchmark for oil, rose 2.5% to $64.28 a barrel. Gold prices fell about 1%.

Overseas, the pan-continental Stoxx Europe 600 climbed 0.1%.

Most major Asian indexes gained. China's Shanghai Composite Index rose almost 2%, while in Hong Kong, the Hang Seng jumped 2.7%. Japan's Nikkei 225 edged up 0.5%, and South Korea's Kospi rose 1.3%.

Write to Will Horner at William.Horner@wsj.com and Amber Burton at Amber.Burton@wsj.com

(END) Dow Jones Newswires

03-03-21 1617ET

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