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S&P 500 Falls After Yellen Triggers Rate Hike Jitters

Stock MarketsMay 04, 2021 04:27PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 fell Tuesday, as investors reined in their bullish bets on tech stocks after Treasury Secretary Janet Yellen talked up the prospect of rate hikes to prevent the economy from overheating.

The Dow Jones Industrial Average rose 0.6%, or 19.8 points, but had been down about 320 points at the lows of the day. The S&P 500 was down 0.67%, and the Nasdaq Composite slumped 1.9%.

"It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat," Yellen said Tuesday during an economic seminar presented by The Atlantic. "Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates."

 
Yellen did, however, clarify her remarks after the markets closed, insisting that she was not projecting that rates would rise. She also agreed with the Fed that inflation will be prove transitory.   

Still, the earlier remarks stoked the worst fears of the market – higher rates and inflation – exacerbating the selloff in high-flying tech stocks, which are less attractive in periods of rising rates and inflation during which a dollar today is more worth more than a dollar in the future.

"Yellen hit on the worst fears of the market: rising interest rates rising, inflation," Darren Schuringa, CEO of ASYMmetric ETFs said in an interview with Investing.com on Tuesday. "Had Yellen mentioned rising taxes that would have been the trifecta [of market fears]. This, more than anything, is what's driving the markets down today."

Google-parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB), Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) fell more 1%, with the latter down 3.5%.

Chip stocks, down 1.6%, also contributed to the weakness in the tech, paced by a 3.7% decline in Nvidia (NASDAQ:NVDA). 

The tech wreck could continue as the reflationary environment will likely drive up bets on cyclicals.

"Tech has had its day in the sun, Schuringa said. "If the economy is going to recover and inflation starts to come out, the reflation trade right now makes sense." Investors will likely source funds for the reflation trade from areas in their portfolio "where valuations are most stretched," he added.

The weakness in tech offset a wave of mostly bullish corporate earnings, with Pfizer , CVS and Under Armour (NYSE:UA) in the spotlight.

Pfizer (NYSE:PFE) reported first-quarter EPS of 93 cents that markedly beat Wall Street expectations of 78 cents, driven by strong sales of its Covid-19 vaccine.  

Pfizer's raised its outlook on full-year Covid-19 vaccine sales, which were about 24% of its overall revenue for the first quarter. 

CVS Health Corp (NYSE:CVS) delivered Q1 results that were ahead of consensus estimates, boosted by vaccinations and increased sales of prescriptions. Its shares rose 4%.

Under Armour (NYSE:UAA)'s better-than-expected quarterly results were shrugged off as its shares fell nearly 1% on the day.

The wave of earnings for the first quarter so far, has seen about 86% of the S&P 500 companies deliver a positive surprise, putting the index on course for its best quarterly earnings in more than a decade.

"The S&P 500 index is now reporting the highest year-over-year growth in earnings since Q1 2010 for Q1, " FactSet said in a note Friday.

S&P 500 Falls After Yellen Triggers Rate Hike Jitters
 

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Comments (12)
Warren Sinden
Warren Sinden May 05, 2021 5:09AM ET
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When Ms Yellen decides to give a hawkish comment the markets get so volatile that even the forums. freeze.
Joe Ramella
Joe Ramella May 05, 2021 3:35AM ET
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She has no control over interest rates. That was definately no accident!
Steve Lora
Steve Lora May 05, 2021 12:00AM ET
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Democrats are full of old senile people
George Vincent
George Vincent May 04, 2021 8:34PM ET
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Loose cannon old horse
Leon Kelly
Leon Kelly May 04, 2021 8:09PM ET
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a liar never tells the same story twice
Michael Angelo
Michael Angelo May 04, 2021 7:58PM ET
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Don't blame her, one day needs to happen.
Sean Livingstone
Sean Livingstone May 04, 2021 7:47PM ET
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She is part of wall street. She pulls down the market for smart monies.
CHAD TENDIES
CHAD TENDIES May 04, 2021 7:43PM ET
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Lol I dare them to raise rates. They can’t even if they want to. The entire system would collapse
Michael Angelo
Michael Angelo May 04, 2021 7:43PM ET
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And what's the problem?
Oliver Closeoff
Oliver Closeoff May 04, 2021 7:43PM ET
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What system would collapse and why?
Dave Jones
Dave Jones May 04, 2021 7:43PM ET
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Oliver Closeoff LMAO for God's sake don't invest
Steve Lora
Steve Lora May 04, 2021 7:36PM ET
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Whats a "Rate Hike Jitters "?..Is there a biologic live virus to treat it
Raber Amin
Raber Amin May 04, 2021 7:36PM ET
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Danny Brooks
Danny Brooks May 04, 2021 7:33PM ET
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Janet will not be getting a Christmas card this year! 🤬
Chris Sundo
Chris Sundo May 04, 2021 7:28PM ET
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Fascinating how the PHAT FINGERS can pull Yellen out of a hat (by being informed ahead of time what she's gonna say and when she's gonna 'perform' ;)  __ So she must have given that lecture AND MENTIONED THOSE WORDS BEFORE MARKET OPENING since the market gapped down big time. -- Can someone fact-check that timing, please? ((''..to make sure that our economy doesn’t overheat,'' Yellen said Tuesday during an economic seminar presented by The Atlantic..))
Steve Lora
Steve Lora May 04, 2021 7:28PM ET
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Alan Greenspan use to do that at 3:45 pm on Fridays after a great week
Lee Eppel
Lee Eppel May 04, 2021 7:28PM ET
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Chris true Mkt tanked before her comments and then bounced begote she walked tge comments backThis is abhorent she is leaking info to big players somehow
 
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