U.S. stocks fell again on Thursday, the Nasdaq Composite Index fell nearly 10% from the record high touched in February, the Federal Reserve Board (Fed) Ball’s talk let investors worried about the rise in long-term U.S. bond yield disappointed.
The U.S. 10-year bond yield rose sharply to 1.533% after Ball’s speech, as he did not suggest that the Fed will adjust its asset purchase program to cope with the recent jump in the yield. 10-year bond yield hit a one-year high of 1.614% last week. Some investors thought that the Fed might increase its purchases of long-dated bonds to help keep long-term interest rates down.
At the close of trading at 4:00 p.m. New York Time, the Dow Jones Industrial Average plunged 345 points, or 1.11%, to close at 30,924.14; the S&P 500 fell 1.3% to 3,768.47. The Nasdaq Composite Index plunged 2.11 percent to 12,723.47 points.
The Nasdaq Composite lost all of its gains so far this year and was down 9.7 percent from its all-time peak set on Feb. 12. tesla, Peloton Interactive
Inc. and Zoom Video Communications Inc. were among last year’s star stocks that simultaneously plunged at least 20 percent.
Scott Brown, chief economist at Raymond James, said, “The market has been worried about rising long-term interest rates, and the Fed chairman gave no indication in his speech that he was going to hold rates down, and the market saw that as a signal that colonial rates could rise further, and that’s exactly what happened today.”
Data showed that initial U.S. jobless claims rose last week, likely driven by the ice storm in the densely populated South in mid-February, although the labor market outlook is improving as cases of Neocon (CCA virus) decline.
Apple, Tesla, and PayPal dragged down the S&P 500 the most. Tesla fell sharply by nearly 5%.
The S&P 500 energy stock index jumped 2.5%, rising to a one-year high on the back of higher oil prices.
Technology stocks are particularly sensitive to rising colonial rates because their value depends heavily on future earnings, and when bond returns rise, the discount to future earnings is greater.
Tim Ghriskey, chief investment strategist at Inverness Counsel, said, “Stocks are at the high end of their historical range right now, so you’re going to see a sell-off, especially in higher-priced areas like the Nasdaq Composite and technology stocks.
“It’s the opposite of what we saw over the summer,” said Matt Stucky, a fund manager at Northwestern Mutual Wealth Management Co. “Some of the larger technology stocks are clearly getting beaten down. A big part of that has to do with the rise in long-term interest rates.”