Rising bond yields put heavy pressure on technology stocks Thursday, a day after the Dow Jones Industrial Average surpassed 33,000 for the first time in history thanks to dovish comments from the chairman of the Federal Reserve.
The see-saw trade is emblematic of a market trying to balance optimism about robust future economic growth and fears that rapid expansion could spark a profit-sapping wave of inflation.
The proximate cause for Thursday's selloff was the yield on the benchmark Treasury note hitting a 14-month high. But the equity strategy team at Bank of America Global Research says the bond market's inflation fears are both predictable and overwrought.
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"There is always some reason or the other since the start of this bull market to complain or worry about," the BofA analysts wrote in a note to clients. "That's why bull markets climb a wall of worry. The latest worry is rising bond yields and inflation. Interestingly, we have gone from all that skepticism about no V-shaped recovery straight to the opposite end -- inflation! All within a few months. Worriers are going to worry."
Priced-to-perfection big tech stocks once again bore the brunt of the selling, with Apple (AAPL, -3.4%) and Microsoft (MSFT, -2.7%) among the Dow's biggest laggards. Amazon.com (AMZN, -3.4%) and Google-parent Alphabet (GOOGL, -2.9%) likewise took their lumps.
The blue-chip Dow slipped 0.5% to finish at 32,862, while the broader S&P 500 fell 1.5% to 3,915. The tech-heavy Nasdaq Composite tumbled 3.0% to settle at 13,116.
In economic news, weekly jobless claims rose to 770,000 from 725,000 a week ago.
Other action in the stock market today:
- The small-cap benchmark Russell 2000 declined 2.9% to 2,267.
- U.S. crude oil futures declined for a fifth consecutive session, off 8.2% to $59.28 per barrel.
- Gold futures ticked up 0.4% to $1,734 an ounce.
- The U.S. Dollar Index rose 0.5% to 91.86.
Don't just do something; stand there
When the federal government is pumping almost $2 trillion into the economy, it's easy for investors to feel like they must act.
Rising borrowing costs, incipient margin pressure, higher inflation expectations or the perennial "fear of missing out" are just some of the anxieties gnawing on the market's increasingly brittle psyche these days.
Partly that's due to an overabundance of choices for how to profit in these pivotal times. For example, analysts have identified a load of stocks set to benefit from both an increase in revenue from stimulus spending and an influx of retail investors' stimulus checks. Stockpickers are also full of ideas for how to play the reflation trade, or names set to take off thanks to a healthy general rise in prices. And then there are all the ways in which to take advantage of changes in federal spending priorities, such as stocks primed to outperform on a massive infrastructure push.
When confronted with an almost exhausting number of choices, it's not a bad idea to remember first principles. Namely, a rising tide lifts all boats.
Rather than lose sleep trying to pick the winners from the losers, consider cheap, diversified investments that offer ample exposure to any upside, as well as a cushion against any downside. Take a deep breath, and consider senior investing editor Kyle Woodley's 21 ETF picks for 2021 -- there's an ETF play for every investing objective.
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