Dow Today – Stocks Open Lower as Bond Yields Hit Two-Year High
U.S. stock indexes fell at the opening, with bond yields at two-year highs, intensifying investors’ fears that rising interest rates will set back the large technology stocks that have come to dominate markets.
Technology stocks have come under pressure in January as government-bond yields have risen. On Tuesday, the yield on the benchmark 10-year Treasury note ticked up to 1.827%—its highest level in two years—from 1.771% Friday. Yields rise when prices fall.
In premarket trading, shares of electric-vehicle maker Tesla,
—formerly known as Facebook—each fell about 2%.
shot up more than 30% premarket after The Wall Street Journal reported that
was nearing a deal to buy the videogame heavyweight that has been roiled by claims of workplace misconduct.
Several financial companies including Goldman Sachs posted earnings ahead of the market open. Profits have begun to ebb at some big banks that benefited from the tumultuous pandemic economy. Shares of Goldman Sachs fell 4% premarket after it reported a decline in fourth-quarter profits.
U.S.-listed shares of Alibaba fell 4.3% after Reuters reported that the Biden administration was reviewing the e-commerce giant’s cloud business to determine whether it poses a national security risk.
Investors expect a tight labor market and elevated inflation will prompt the Federal Reserve to carry out multiple rate increases this year. The yield on the two-year government bond rose to 1.028%—the highest level since February 2020—from 0.965% Friday, a sign of expectations for higher rates. Higher yields can reduce the appeal of the future earnings promised by many tech stocks.
Interest-rate futures markets indicate investors are betting on four to five interest rate rises this year, up from three to four Friday, according to
“Markets are still trying to find a level for rate increases. It was only in October the market was expecting one rate hike for 2022 and now it’s expecting four,” said
chief investment officer at UK. investment firm Brooks Macdonald. “That’s reflecting the level of uncertainty we have in the market right now about the path of Fed policy.”
The Cboe Volatility Index—Wall Street’s so-called fear gauge, also known as the VIX—ticked up to 21.53, its highest level in a month.
Oil prices rose as geopolitical tensions in the Middle East added to worries about tight supply. Futures for West Texas Intermediate, the main grade of U.S. crude, rose 2% to $84.96 a barrel. If the contracts settle above $84.65 a barrel, it will mark their highest closing level since October 2014. Yemen’s Iran-backed Houthi rebels said they were behind aerial attacks in the United Arab Emirates on Monday, as intensifying fighting spills out across the region.
Overseas, the pan-continental Stoxx Europe 600 fell 0.9%, with the biggest losses in the technology and travel and leisure sectors. Shares of
fell 14% after the Swiss asset-management firm said it would notch a net loss for 2021 equivalent to around $33 million.
The surge in Treasury yields pushed up bond yields globally. The benchmark 10-year German bund yield traded as high as minus 0.005% on Tuesday, up from minus 0.061% Monday, on the verge of crossing positive territory for the first time since 2019, according to
Major indexes in Asia broadly closed lower, although China’s Shanghai Composite bucked the trend, adding 0.8%. South Korea’s Kospi fell 0.9%, Japan’s Nikkei 225 edged down 0.3% and Hong Kong’s Hang Seng declined 0.4%.
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