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TradersBest.com / Big Losses on Tech Stock After Surge in Bond Yields

Big Losses on Tech Stock After Surge in Bond Yields

Publish Date: 26/02/2021

The US stock market suffered a temporary shock last week when a flash spike in the 10-year bond yield caused investors to sell-off the largest number of stocks since October 2020. The major tech firms like Alphabet, Facebook and Apple were all hit hard, while both the Dow and NASDAQ slipped.

Investors were spooked due to the unexpectedly high rise in bond-yields. The spike in the 10-year Treasury yield hit 1.6% at one point, before returning to just above 1.5%. This makes it the highest mark for bond yield rates in over a year.

The spike in yield levels caused the mass sell-off off tech assets that had previously been soaring on the stock exchange. This was due to the fact that the increase in bond yields led to a market suspicion that inflation could be due to rise.

As a result, many of the more ‘high-risk’ stocks were the biggest victims of the mass sell-off. Tesla was the worst casualty with a massive 8.1% wiped off its share price. Apple, Alphabet and Facebook all suffered losses of around 3%, and even Microsoft saw a drop in value of 2%.

Indices such as the S&P 500 lost 2.5% in value making it the worst performing day since the end of January. It was also a tough day for the Dow Jones Industrial Average that dropped 1.8% in value. The NASDAQ was hardest hit with its tech-heavy profile sliding by 3.5% making it the worst sell-off in over four months. Such a drop in value is notable is it marked the second successive week that the NASDAQ had registered an overall loss.

It is thought that big tech brands were hit hard due to the fact that many of these companies are heavily reliant on borrowing to sustain their rapid growth rates. As such the rising profile of bonds meant that risky stocks were no longer seen as being so attractive.

Impact of the US economy opening up

Much of the overall change in market conditions has been put down to the fact that the US economy is gradually opening up. Certain sectors are enjoying a significant boost on the markets in contrast to the downturn in tech stocks. Last week saw the stock price of the energy market rising by nearly 7%. It’s worth noting that both financials and industrials have benefited from the changing market conditions.

There is still plenty of work to be done to bring the US economy back to its pre-pandemic levels. The job market is one particular area of concern with the number of first-time jobless claims hitting nearly three-quarters of a million last week.

While there are still freak movements on the stock market such as the ongoing GameStop saga, it looks like investors are starting to place more faith in financials, utilities and consumer staples, rather than those high-flying tech brands.

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