By Geoffrey Smith
Investing.com -- U.S. stock markets fell again at the opening on Wednesday, as fears of higher inflation drove long-term bond yields higher.
The 10-Year Treasury not yield rose to a new 12-month high of 1.4%, after Federal Reserve Chairman Jerome Powell recommitted in testimony to the Senate Banking Committee to a policy stance that is aggressively reflationary. He's expected to repeat such lines again from 10 AM ET (1500 GMT) in remarks to the House of Representatives.
By 9:40 AM ET (1440 GMT), the Dow Jones Industrial Average was down 80 points, or 0.3%, at 31,458 points. The S&P 500 was also down another 0.3% while the Nasdaq Composite was again underperforming with a drop of 0.8%.
The rise in bond yields profoundly changes the assumptions underlying the valuation of stocks. Most financial models base their discount rates on such reference points, and tech stocks in particular have benefited in recent months from the assumption that long-term rates will stay at historically low levels over the next few years. But the 10-year risk-free rate has now risen over a quarter of a percent in the last two weeks, and plugging the higher number into discounted cash flow models inevitably results in lower valuations for most stocks.
As such, Apple (NASDAQ:AAPL) stock was down 1.3% and Amazon (NASDAQ:AMZN) stock and Alphabet (NASDAQ:GOOG) stock were both down 1.1%.
Outperformers included the big bank stocks, all of whom stand to gain from widening lending margins. They too price their longer-term loans off of bond yields, while the Federal Reserve is set to keep short-term rates anchored close to zero for at least the next two years.PNC Financial Services Group Inc (NYSE:PNC) stock rose 1.9% in early trading, while Morgan Stanley (NYSE:MS) stock rose 1.6% and Bank of America Corp (NYSE:BAC) stock rose 1.5%.
Johnson & Johnson (NYSE:JNJ) stock also outperformed, rising 0.6% after the Food and Drug Administration said that its one-shot vaccine against Covid-19 is safe and effective. The news is likely to lead to a swift authorization for emergency use from regulators, providing more competition for the likes of Pfizer and Moderna . Pfizer Inc (NYSE:PFE) stock lost 0.5% while Moderna (NASDAQ:MRNA) stock lost 2.4%.
Elsewhere, Workhorse (NASDAQ:WKHS) stock extended its decline, albeit at a slower pace, falling another 9.2% after failing to win a federal contract for electric delivery vehicles that many had bet on. The stock had lost over half its value on Tuesday, with circuit-breakers being activated at regular intervals. The order went instead to rival Oshkosh (NYSE:OSK), whose stock rose 6.8% in early trading.
With crude oil and gas prices still underpinned by a weak dollar and suggestions of sustained bottlenecks in the wake of the Texas cold snap, Occidental Petroleum (NYSE:OXY) stock rose 5.0% to its highest in a year.