Tech Stocks Pare Losses as Fed Looks Dovish to Investors

02/23/2021 | 11:45am

By Joe Wallace

Tech stocks rebounded from an early-morning rout Tuesday after Federal Reserve Chairman Jerome Powell signaled that a central-bank rate increase remains far off in the future, easing some concern over rising interest rates.

The S&P 500 was down 0.6%, lower for a sixth consecutive session as investors recalibrate their expectations for stocks with bond yields climbing. The blue chip index earlier was down as much as 1.8%.

The index, along with the Dow Jones Industrial Average and the Nasdaq Composite, recouped some of their losses after Mr. Powell said inflation remained soft, tamping down fears of a policy shift by the central bank. In recent trading, the Nasdaq was down 1.7% and the Dow down 0.4%.

Earlier, the Nasdaq dropped as much as 4% and investor favorites such as Tesla Inc. and Moderna Inc. dropped by double digits, part of what portfolio managers said was a rotation out of the high-growth favorites in the past year and into more economically sensitive stocks such as banks and manufacturers.

"The economy is a long way from our employment and inflation goals," Mr. Powell said in prepared remarks for a hearing of the Senate Banking Committee Tuesday morning.

Still, the six-day decline marks the S&P 500's longest losing streak in a year.

A sharp rise in yields on U.S. government bonds in recent days has sapped investors' appetite for riskier assets, including stocks. Shares in technology companies, which have powered the broader market higher for much of the past year, are seen as particularly vulnerable, thanks to high valuations. Their profits become less valuable in today's terms when investors apply a higher discount rate, thanks to rising 10-year Treasury yields, recently 1.37%.

The rise in bond yields "naturally does cause investors and cause markets to re-examine the view on equities," said Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is beginning to look more attractive for the first time in months, he said.

But "the level at which bond yields become truly problematic for equities is a long way from where we are now," Mr. Jackson added.

The yield on 10-year Treasury notes was at 1.371%, close to where they settled on Monday. Yields, which rise as bond prices fall, are lower than they were before the coronavirus pandemic sent markets into a tailspin last year. Investors say it is the speed at which yields have increased, rather than their level, that is hurting stocks.

European Central Bank President Christine Lagarde on Monday said the ECB was closely monitoring bond yields, comments interpreted by analysts as a sign of discomfort with their recent rise. Mr. Powell is unlikely to follow suit by pushing back on the rise in Treasury yields, according to Remi Olu-Pitan, multiasset fund manager at Schroders.

"At the moment, none of those indicators are flashing red -- they are not even amber yet -- but they are not as green as they were six months ago," she said, referring to the level of yields and expectations of when the Fed is likely to raise interest rates.

Tesla fell 2.8% after declining almost 9% on Monday. The move came as the price of bitcoin slid about 8% to $48,506.40, according to CoinDesk.

The latest bout of volatility in cryptocurrency markets followed comments by Tesla Chief Executive Elon Musk, who said over the weekend that prices for bitcoin and ethereum seemed high. The electric-vehicle maker earlier this month disclosed that it had bought $1.5 billion in bitcoin. Mr. Musk has also become a prominent cheerleader for cryptocurrencies.

Shares of technology firms and other stocks that have performed well during the pandemic came under pressure ahead of the opening bell. Palantir Technologies extended its recent slide, losing 4.6%. Payments firm Square fell nearly 3.9%. It is due to report earnings after markets close, along with security-software company McAfee.

Home Depot said growth could slow this year, knocking shares by 3.3% in recent trading.

Overseas, the Stoxx Europe 600 shed 1.3%, led lower by tech stocks. HSBC shares fell 2% after the bank said it would invest an extra $6 billion in Asia in the next five years and could sell its U.S. retail operations.

In Asia, Hong Kong's Hang Seng climbed 1% and China's Shanghai Composite Index slipped 0.2% by the close of trading.

--Michael Wursthorn contributed to this article.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

02-23-21 1144ET

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