Tech Shares Lead Nasdaq Higher as Treasury Yields Cool Down
23 Mar 2021 · 3rd Party Analysis
- US stocks climb as bond yields retreat from their Friday highs
- Tech stocks power Nasdaq 1.2% higher
Tech Shares Lead Nasdaq Higher
US equities opened the week higher as investors made another push to the upside on the back of falling Treasury yields.
All three benchmark indexes closed in positive territory on Monday. Nasdaq Composite leading the pack, up 1.2%, or 162 points, to close at 13,377. The Dow Jones Industrial Average finished the session at 32,731, higher by 0.32%, or 103 points. While the S&P500 ended higher by 0.70% or 27.49 points to a close of 3,940.
The positive session comes after a week of losses for the major indexes. This was narrated by investors’ fears over a sharp spike in prices as Fed reiterated its hands-off approach to the economy. What followed was a renewed spike in Treasury yields that spooked market participants as they rotated to cyclical stocks.
To start the week, technology stocks powered the Nasdaq Composite to higher grounds. They were boosted by renewed growth stocks appetite after a modest pullback of bond yields. Thus, US Treasury yields, which fall when bond prices rise, subsided below their highs from last week.
Consequently, the 10-year Treasury yield fell below 1.682%, from 1.729% on Friday. Apart from the 10-year Treasury bond, the 30-year Treasury bond also dropped from its Friday high of 2.451% to 2.381% on Monday.
Yields have been on the rise for the past seven weeks. This caused a lot of friction between investors and the Federal Reserve.
While some sectors in the stock market are also dented, like tech shares, because future earnings decrease in value in a high bond yields environment. In addition, the highflying tech sector becomes more expensive to own when bond yields rise.
Last week, the Federal Reserve promised to keep interest rates unchanged in order to maintain easy-money policies and help the economy recover faster from the pandemic. The market, however, fears that the central bank could act too late if it allows the economy to run hot. Which could result in a quick rise in inflation.
Bond Yields Rise
On Monday, tech stocks which have been largely pushed aside as bond yields rose, became fashionable again. Apple, Tesla, Microsoft and Netflix, all rose by over 2% each in the tech-favorable trading session. Apple gained 2.83% to reach a closing price of 123.39. While Tesla climbed 2.31% and closed at $670 a share. Also, Microsoft and Netflix rose by 2.45% and 2.13% respectively.
Meanwhile, Jerome Powell, chairman of the Federal Reserve, released a prepared testimony ahead of his appearance before House financial services committee later today.
In his testimony, Mr. Powell vows the central bank will continue to provide monetary support to the US economy “for as long as it takes”. He is set to appear alongside Treasury Secretary Janet Yellen in hearings on Tuesday and Wednesday to discuss the US economy and its roles in the recovery.
The economic outlook for the US remains bright as successful vaccine campaigns are rolled-out across the states. In addition to a drop in confirmed daily cases and a lowering hospitalization rate.
Moreover, the massive fiscal stimulus of $1.9tn is already being sent out to individuals and businesses. Therefore it is expected to add as much as 7 million more jobs to the economy.