The Dow Jones Index plummeted by nearly 600 points, as U.S. Treasury yields soared and pushed technology stocks to sell strongly

The

Backline

Technology stocks led the decline on Tuesday, as inflation and economic growth expectations were boosted by high spending measures passed by Congress, which pushed the yield on the 10-year US Treasury note to rise sharply, thus weakening the high stock valuation.

A trader works at the New York Stock Exchange. The Nasdaq index, which is dominated by technology stocks, fell 5% … [+] Earlier this month, it hit a record high.

Key facts

The Dow Jones Industrial Average fell 570 points, or 1.6%, to 34,299 on Tuesday, while the S&P 500 fell 2%, making each index approximately 3.5% below its all-time high since this summer.

Led by sharp declines in chip makers ASML, Applied Materials, and AMD, the technology-based Nasdaq index plummeted 2.8% to 14,546 points, more than 5% lower than its latest high earlier this month.

The 10-year U.S. Treasury bond yield soared by 3.5 basis points on Tuesday to the highest level in more than three months, causing investors to stay away from high-priced industries and triggering a technology-focused sell-off. President and market analyst Tom Essaye Sevens Report Research The report said.

In the Standard & Poor’s Index, stocks such as e-commerce company Etsy, vaccine manufacturer Moderna and software company ServiceNow all fell, all down about 6%.

At the same time, data released by the US Advisory Council on Tuesday showed that US consumer confidence unexpectedly fell to a seven-month low this month, and pointed out that the spread of delta variants continued to suppress optimism.

Important quotation

“There have been many dramatic events on Wall Street, most of which are related to the resetting of inflation expectations,” Oanda analyst Edward Moya wrote in a report on Tuesday. “The surge in U.S. Treasury yields is a kind of kryptonite for Nasdaq and will eventually drag down growth expectations.”

Key background

The rise in Treasury bond yields coincides with several rounds of market pressure this year. In the morning report, Adam Crisafulli, an analyst at Vital Knowledge Media, pointed out that yields (still about 50% lower than pre-pandemic levels) are normalizing and are rising mainly for “good reasons”, that is, for a stronger economy. Expectations of growth. However, for technology stocks, this recovery should be difficult. After the Nasdaq index soared 43% last year, technology stocks suffered the most. “The pandemic has driven a massive rise in technology stocks,” he said, adding that as the pandemic subsides, the forces that drive stocks are “reversing.” Crisafulli pointed out that the pandemic-driven growth has begun to slow down, weakening their future income prospects, and rising yields will only further erode share prices.

What to pay attention to

In a recent report, Morgan Stanley analysts estimated that for every 100 basis points increase in 10-year U.S. Treasury yields, the S&P 500’s valuation relative to earnings may fall by an average of 18%. So far this year, the yield has increased by about 60 basis points. Morgan Stanley said the stocks with the most downside risks include Zoom Video Communications, the most popular at home recently, fitness equipment company Peloton and Tesla.

Chief commentator

Lynn Franco, senior director of the Conference Committee, said in a statement on Tuesday: “As the spread of delta variables continues to suppress optimism, consumer confidence fell in September.” “Worries about economic conditions and short-term growth prospects deepened, and The consumption intentions of households, automobiles and major home appliances have all fallen again.