US stocks rebound as tech-led sell-off eases – Financial Times


US stocks clawed back losses to end a wild trading day higher after Federal Reserve chairman Jay Powell signalled he had no immediate plans to change monetary policy despite the rising growth and inflation expectations that have been roiling markets.

The benchmark S&P 500 gained 0.1 per cent, reversing losses that had pushed the index 1.8 per cent lower earlier on Tuesday.

The technology-focused Nasdaq Composite went on an even wilder ride, sliding as much as 3.9 per cent in early trading before recovering to end down just 0.5 per cent.

Tech stocks have sold off sharply since last week as investors tried to price in the risk that faster inflation and rising long-term interest rates could pose to record-high equity market valuations.

At the end of Tuesday’s session, some tech darlings had bounced back, with Amazon and Google-parent Alphabet ending the day in positive territory. High-flyers such as Tesla and Square still closed lower, however, and the rotation away from faster-growing companies weighed on many stocks that had benefited as consumers stayed at home during the pandemic.

Shares of Zoom Video Communications, the videoconferencing company, and Teladoc Health, a provider of virtual doctor’s visits, declined on Tuesday. Goldman’s “US stay-at-home index” slid 0.8 per cent.

Tesla’s 2 per cent decline was enough to erase the remainder of the electric car maker’s gains since the start of the year.

Line chart of Performance (%) showing Tech shares slide for second consecutive day

Powell told the US Senate there was “hope for a return to more normal conditions” as the pandemic eases but he also signalled no change to the central bank’s easy monetary policies.

“He’s very dovish, and he does not see inflation or employment near target,” said Saira Malik, head of global equities at Nuveen.

The US Treasury market stabilised on Tuesday as Powell spoke. The yield on the benchmark 10-year bond fell 0.01 percentage points to 1.35 per cent.

Improving economic prospects and rising inflation expectations has sparked a sell-off in government bonds from New York to London and Sydney. Analysts have said the resulting higher yields could dent the appeal of quickly growing companies, given that they reduce the present value of future profits.

“Yesterday’s sell-off is just [the] market adjusting for a possible pick-up in inflation and higher rates,” said Artur Baluszynski, managing director at Henderson Rowe.

“Growth stocks, which are now largely concentrated in the tech sector, tend to be more sensitive to interest rate movement than, for example, value stocks. Try to increase the discount rate, and the valuation adjustment could be quite brutal, especially for narrative-driven stocks with negative cash flows,” he said.

European bonds had weakened ahead of Powell’s appearance. Germany’s 10-year debt yield rose another 0.02 percentage points on Tuesday to minus 0.32 per cent, as investors sold out of the debt.

The 10-year yield on UK government debt pushed up 0.04 percentage points to 0.72 per cent. That is about 0.5 percentage points higher than at the start of the year.

London’s energy-biased FTSE 100 benchmark eked out a small 0.2 per cent gain as oil prices and other commodities hovered near recent highs. Brent crude, the global benchmark, settled 0.2 per cent higher at $65.37 a barrel.

Germany’s Xetra Dax, meanwhile, was off 0.6 per cent. Despite Monday’s release of a road map out of England’s lockdown, the slower rollout of Covid-19 vaccines on the continent continued to cloud market sentiment, said strategists.

China’s CSI 300 index of Shanghai and Shenzhen-listed stocks lost another 0.3 per cent, a day after the benchmark suffered its biggest one-day drop in more than six months. The sell-off was prompted by concerns that the country’s rapid economic recovery from the Covid-19 pandemic could bring on the removal of policy support for asset prices.


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