The Nasdaq Composite fell sharply for the second-straight day on Tuesday as higher interest rates appeared to put pressure on high-flying tech stocks.
The tech-heavy index was down 1%, while the S&P 500 shed roughly 0.3%. The Dow Jones Industrial Average was the relative outperformer, rising 100 points on the strength of bank and energy stocks.
Social media stocks such as Facebook-parent Meta and Twitter each fell 1%, while Roku slid more than 2%. Shares of Zoom Video Communications tumbled 17% a day after it beat earnings estimates but warned of a slowdown ahead as the Covid pandemic winds down and the demand for remote contact decreases
The decline in tech stocks comes as Treasury yields have jumped following President Joe Biden’s decision to renominate Fed Chair Jerome Powell. Higher rates are often seen as a negative for high-growth companies because their future earnings look less attractive as short-term yields rise.
“We have seen a little pressure on tech stocks as long-term government bond yields have rallied for the second day now. That’s weighing on valuations. Zoom earnings didn’t help today, highlighting some of the dynamics in these very high-growth parts of the market that … growth is slowing on the margin,” said Angelo Kourkafas, investment strategist at Edward Jones.
Powell’s renomination was generally welcomed by Wall Street, but the moves in the Treasury market have been sharp. The benchmark 10-year Treasury yield was trading near 1.66% on Tuesday, up from about 1.54% on Friday. Yields move opposite of prices.
“With a Powell-led Fed, we expect the speed of the QE taper to follow the data, likely speeding up if inflation prints continue at the pace of the October print with interest rate hikes to shortly follow the taper (June at current pace). The market believes this action will keep the Fed in control of inflation,” Aptus Capital Advisors portfolio manager John Luke Tyner said in a note to clients.
“While the market is expecting a more hawkish response to current inflation, time will tell if it will be enough, as Powell is well established in the dovish camp of FOMC policy,” he added.
In other earnings news, shares of Best Buy also fell sharply after the company said comparable sales and gross profit margin might decline in the fourth quarter compared to the year ago period.
On the positive side, chipmaker Western Digital was one of the best performers in early trading following an upgrade from Mizuho. Energy stocks also moved higher even after President Joe Biden announced on Tuesday that he would tap the strategic petroleum reserve in an attempt to lower gas prices at a time when inflation is running at its highest level in three decades. The price of oil had declined in recent days amid rumors that Biden would take this step.
Bank stocks also rose along with rates, with shares of JPMorgan climbing more than 2%.
Tuesday’s moves come after the market slid into the close on Monday after the S&P 500 and Nasdaq had hit intraday records earlier in the session. The Nasdaq closed down 1.26%.
While trading is likely to slow because it’s Thanksgiving week and the Fed chief decision is behind the market, investors will be watching some economic data coming out Tuesday, including the Philly Fed. Additional data out later in the week includes weekly unemployment claims, a GDP update, personal income, and consumer confidence reads.
Investors are also juggling concerns about coronavirus overseas. German Chancellor Angela Merkel warned that the country was seeing a spike in the virus.
“Although Covid case counts are up around the globe, there is not much evidence that it is shutting down the U.S. economy again as it has in the past,” said Jim Paulsen, chief investment strategist for Leuthold Group. “For example, travel forecasts for the Thanksgiving holiday are the strongest since before the pandemic.”
U.S. markets will be closed for the Thanksgiving holiday on Thursday. The stock market closes early at 1 p.m. ET on Friday.