Technology companies powered stocks higher on Wall Street yesterday, driving the Nasdaq to its biggest gain in four months and more than making up for a sharp skid a day earlier.
The Nasdaq surged 3.7 per cent, led by gains in Big Tech companies such as Apple, Amazon and Facebook. Despite its big day, the index remains 7.2 per cent below its all-time high set February 12. On Monday, it closed 10 per cent below its peak, what is known as a “correction” on Wall Street.
The tech stocks rally, which helped lift the S&P 500 1.4 per cent, followed a decline in bond yields, which have been increasing rapidly in recent weeks, driving up long-term interest rates. The yield on the 10-year Treasury note dropped to 1.54 per cent after trading above 1.60 per cent a day earlier.
Higher bond yields tend to pull money away from high-priced stocks like technology companies, which have been soaring through the pandemic and, as a result, have been beaten down in recent weeks as bond yields have marched higher.
“The yields being down took a little of the pressure off the tech stocks,” said Willie Delwiche, investment strategist at All Star Charts. “There’s still beneath the surface a buy-the-dip mentality and a belief that large-cap growth (stocks) are going to be a persistent leader in the market.”
Some of the big technology stocks that fuelled the market’s remarkable turnaround in 2020 after its initial plunge as the pandemic upended the global economy have been shedding gains in the weeks since the Nasdaq’s peak. Apple, for example, was down 14 per cent through the end of last week, while chipmaker Nasdaq was off 22.5 per cent and Tesla was down 31 per cent.
Apple rose 4.1 per cent, Nvdia climbed eight per cent and Tesla jumped 19.6 per cent for the biggest gain in the S&P 500.
Financial sector stocks, which had benefited from the rise in bond yields, were the biggest decliners yesterday. Bank of America fell 2.2 per cent, while American Express slid 3.4 per cent. Banks and credit card issuers tend to do well when interest rates are rising because they get to charge higher rates on loans.
Yields have been climbing with rising expectations for growth and the inflation that could follow. Higher yields put downward pressure on stocks generally, in part because they can steer away dollars that might have gone into the stock market into bonds instead. That makes investors less willing to pay such high prices for stocks, especially those that look the most expensive, such as technology stocks.