S&P 500 Falls After Yellen Triggers Rate Hike Jitters

© 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."

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.