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S&P 500 Slumps as Yield Spike Triggers Tech Tantrum

Published 09/28/2021, 04:18 PM
Updated 09/28/2021, 04:23 PM
© Reuters.
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By Yasin Ebrahim

Investing.com – The S&P 500 slumped Tuesday, as surging Treasury yields triggered a sea of red in tech at a time when economic data flagged weakness in the consumer.    

The S&P 500 fell 2%, the Dow Jones Industrial Average slipped 2%, or 569 points, the Nasdaq slumped 2.8%.

The U.S. 10-year Treasury yield topped 1.5%, rising to its highest level since June, as investors fret about the prospect of the Federal Reserve raising interest rates sooner than expected to control inflation.

"The many supply and demand imbalances, including new production constraints stemming from the pandemic and supply problems, could make inflation surge more than anticipated," Desjardins said in a note.

Some, however, believe it may too earlier to worry about a sooner rather than later liffoff in rates at a time when the Federal Reserve’s balance sheet shows there remains ample liquidity. 

“I don't think we've got enough data to suggest the Fed will lift rates soon,” Mike Skillman who is CEO of Faith Investor Services told Investing.com in an interview Tuesday. "The U.S. central bank is going to be cautious on rate hikes, until it's very clear that inflation will be longer and more problematic than they believe it is today."

Tech was shunned as growth sectors of the market -- with earnings that are further out into future -- become less attractive in a rising rate and inflationary environment, where money today is more valuable than money in the future.

Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Google-parent Alphabet (NASDAQ:GOOGL), Amazon.com (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) ended more than 2% lower.

Chip stocks pushed the broader tech sector further into the red, ASML (NASDAQ:ASML), Applied Materials (NASDAQ:AMAT) and Teradyne (NASDAQ:TER) the biggest decliners.

In a raising rate environment, “you want more exposure to financials, and industrials … as they have a higher proportion of fixed costs than just all labor costs [when compared] to tech companies," Skillman added.

Energy was the sole sector in the green, despite oil prices paring gains as investors continue to expect rising energy will persist amid supply-chain bottlenecks and improved energy demand.

On the economic front, consumer confidence fell well short of investor expectations as the impact of the delta variant weighed on sentiment.

The Conference Board’s consumer confidence index fell unexpectedly to a reading of 109.3 from 115.2, missing economists estimates for 115.0. 

"Just like what we have seen in the University of Michigan sentiment data of the past two months, it looks like consumers are feeling the pain of disappointment caused by the Delta variant of COVID," Jefferies (NYSE:JEF) said in a note.

In other news, Ford Motor (NYSE:F) unveiled plans to invest in a new assembly plant and three battery factories, in an effort to speed up its push into electric vehicles.

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