Stocks drift lower on Wall Street; yields continue to ease

Stocks are drifting lower in afternoon trading on Wall Street Tuesday, giving back some of their big gains from a day earlier. The S&P 500 was down 0.1 per cent after earlier flipping between small gains and losses. A day before, it leaped 2.4per cent for its best performance since June, nearly erasing its entire loss from the week before. The Dow Jones Industrial Average was up 49 points, or 0.2per cent, at 31,584, as of 1:16 p.m. Eastern time, and the Nasdaq composite was 0.7per cent lower.

“At some point the market has to stabilize and today it seems to be stabilizing," said Mike Zigmont, director of trading and research at Harvest Volatility Management.

For weeks, the market's focus has been fixed on the bond market, where a swift recent rise in interest rates is threatening one of the main reasons for the stock market's run to records through the pandemic. The yield on the 10-year Treasury eased a bit more Tuesday afternoon, down to 1.42per cent from 1.44per cent late Monday. It's a reprieve following weeks of relentless rising. The 10-year yield had crossed above 1.50per cent last week, up from roughly 0.90per cent at the start of the year, and the zoom higher raised worries that more increases would destabilize the market.

Treasury yields have been climbing with expectations for economic growth and inflation, and such a rise makes borrowing more expensive for home buyers, companies taking out loans and virtually everyone else. That can slow economic growth. Higher rates also force investors to rethink how much they're willing to pay for stocks, making each USD1 of profit that companies earn a little less valuable.

Technology and internet stocks bore the brunt of the rethink, in large part because their recent dominance left them looking even pricier than the rest of the market. Investors should be prepared for more risks in sectors that have driven the market's growth through the pandemic because of more inflation, according to Cliff Hodge, chief investment officer of Cornerstone Wealth. “What's gotten us here is not likely to get us where we want to be going forward,” he said.

Tech stocks were weak again on Tuesday, with those in the S&P 500 falling 0.8per cent. But strategists along Wall Street remain fairly optimistic, saying stocks in other areas of the market are likely to rise with expectations for the economy's improvement later this year. Gains for banks, energy producers and other companies whose profits are closely tied to the economy's strength can help offset a pullback for tech stocks, which had been driving the market for years, the thinking goes.

Zoom Video Communications, the company whose software helps students and workers around the world talk with each other from a distance, fell 4.2per cent as concerns over slower subscriber growth offset its otherwise solid quarterly financial report and forecast. The biggest gain in the S&P 500 came from Nielsen Holdings, whose ratings data helps companies choose which television shows to advertise on. It rose 7.1per cent after signing a deal with Roku to help measure audiences for streaming content.

On the losing side was First Republic Bank, which fell 3.2per cent for one of the larger losses in the S&P 500 after it said it will sell 1.75 million shares of stock to raise cash. Tuesday's modest moves may prove short-lived. Several speeches and data reports this week could offer more light on the direction of interest rates, which are the dominating force on Wall Street now. Federal Reserve Chair Jerome Powell is scheduled to speak on Thursday.

At the end of the week will be the government's jobs report, which is typically the highlight economic report of every month. It also includes numbers for how much wages are rising across the economy, a key component of inflation. Worries have been rising in recent months that inflation could be headed higher as COVID-19 vaccines get the economy back to strong growth and Washington gets close to delivering another USD1.9 trillion in aid for the economy.

In European stock markets, Germany's DAX returned 0.2per cent, and France's CAC 40 rose 0.3per cent. The FTSE 100 in London added 0.4per cent. In Asian trading, the Nikkei 225 in Tokyo declined 0.9per cent, the Hang Seng in Hong Kong shed 1.2per cent and stocks in Shanghai lost 1.2per cent. The Kospi in Seoul advanced 1per cent after the government reported factory production increased by more than expected in January. 

(Image Credits: AP)