Nasdaq Composite Erases Losses, Finishes Positive

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Rising bond yields suggest investors expect the Fed to move bullish on rate hikes

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The tech-heavy index was down 2.7% in the morning, before reversing course. Last week the Nasdaq posted its biggest one-week drop since February, as rising bond yields dented technical valuations.

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The S&P 500 fell 6.74, or 0.1%, to 4670.29 on Monday. This was the fifth day in a row for the broad market gauge. The Dow Jones Industrial Average fell 162.79, or 0.4%, to 36068.87, its fourth consecutive decline.

According to Tradeweb, the yield on 10-year Treasury notes rose to 1.779% on Friday, from 1.769% on Friday, its highest closing level since January 2020. The benchmark yield briefly settled at 1.807% before retreating. Bond yields move in the opposite direction from prices.

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Rising yields have sent a shiver through tech stocks since the start of 2022. By selling bonds and sending higher yields, investors are signaling that they believe the Fed may raise short-term interest rates in March and may soon begin reducing its holdings of bonds and other assets.

Lower rates helped fuel a major rally in tech stocks last year, making bonds less attractive and prompting investors to buy riskier assets. But as the Fed pushes to fight inflation, tech stocks have lost some of their luster. Higher rates also likely reduce the value that investors see in the cash flows of fast-growing tech companies in the future, affecting their share price.

US inflation data due on Wednesday will be closely watched as investors look to predict when the Fed will start raising borrowing costs. Monthly consumer prices are expected to increase by more than 7% from a year earlier for the first time since 1982.

According to data from exchange operator CME Group, futures markets reflect a more than 75% probability that the Fed will hike rates at its March meeting.

Investors are also anticipating corporate earnings season, which will begin this week with results from US financial firms like JPMorgan Chase, Citigroup.,

Wells Fargo and BlackRock,

Many investors are putting money in bank stocks, believing that they stand to profit from the rise in interest rates.

These include Honey Redha, multiset fund manager at Pinebridge Investments. He said the New York-based investment firm has cut its ownership of tech stocks and Treasuries while increasing cash holdings and exposure to financial companies.

“Equities are down and bonds are down too,” said Mr. Reda. “Cash is even better than owning riskier assets, at least for the time being.”

Markets have also been shaken by the fast-spreading Omicron version of Covid-19 in recent weeks. The seven-day average for newly reported coronavirus cases in the US topped 700,000 for the first time over the weekend, according to data from Johns Hopkins University. Even as evidence suggests that Omicron is relatively mild, the rising caseload has led to staff shortages at airlines, retailers, factories and other businesses.

Lululemon said on Monday that its fourth-quarter earnings would fall toward the low end of forecasts due to Omicron’s shortage of staff and capacity during the holiday-shopping season. The news sent shares of the apparel maker down $6.78, or 1.9%, to $348.43.

In other corporate news, Take-Two Interactive fell $21.61 per share, or 13%, to $142.99 after the videogame maker agreed to buy Zynga in an $11 billion deal. Shares of Zynga rose $2.44, or 41%, to $8.44.

Shares of Gamestop,

A favorite among individual traders, it closed down $9.47, or 6.7%, at $131.15. Its stock jumped last week following news that the videogame retailer plans to foray into the non-fungible token and cryptocurrency markets.

Bitcoin briefly fell below $40,000 for the first time since September. According to CoinDesk, it was trading at $41,705 at 5 p.m. ET, down 1.5% from the same time on Sunday.

In commodities, US natural-gas futures rose 4.2% to $4.08 per million British thermal units. According to analysts at NatGas Weather, cold weather in the midwest and eastern US earlier this week is likely to boost fuel demand.

There was a mixed trend in the foreign stock markets. Stokes Europe 600 fell 1.5%, weighing down shares of real estate and tech companies.

In Asia, the Shanghai Composite Index rose 0.4% and Hong Kong’s Hang Seng gained 1.1%. Japanese markets remained closed for a public holiday.

Mark Anderson, head of asset allocation at UBS Global Wealth Management’s chief investment office, said he favors European and Japanese stocks and stocks in energy and financial companies.

“It is clear that the Fed wants to tighten financial conditions and the means to do so is clearly to get interest rates higher,” he said.

Write to Alexander Osipovich at [email protected] and Joe Wallace at [email protected]

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