The yield on the 2-year U.S. Treasury note jumps back above 4%
U.S. stocks ended modestly lower on Tuesday, dragged down by a selloff in technology stocks as investors closely assessed the state of the banking sector and the health of the economy.
Bond yields continued to extend gains with the 2-year U.S. Treasury note rising back above 4% on Tuesday, putting pressure on the technology sector.
How stocks traded
- S&P 500 SPX, -0.16% dropped 6.26 points, or 0.2%, to end at 3,971.27
- Dow Jones Industrial Average DJIA, -0.12% was off 37.83 points, or 0.1%, to finish at 32,394.25
- Nasdaq Composite COMP, -0.45% was down 52.76 points, or 0.5%, ending at 11,716.08
On Monday, the Dow Jones Industrial Average rose 195 points, or 0.6%, to 32,432, the S&P 500 increased 7 points, or 0.16%, to 3,978, and the Nasdaq Composite dropped 55 points, or 0.47%, to 11,769.
What drove markets
Another day without any major negative news from the financial sector allowed equity markets to catch a bit of a breather on Tuesday, though the Dow industrials reversed morning gains, dipping into negative territory in afternoon trading.
“This is a market that is stabilizing,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s MS, +0.28% global investment office, but while investors regain their footing after the tumult in the regional banks sector KRE, -0.09% during recent weeks, there’s still open questions, he said.
To name a few, there’s the questions whether there’s any spillover consequences for other parts of the economy, how much higher interest rates will go, how tight lending conditions will become and what broader effect that will have.
“In the face of the unknown, the market is always going to err on the downside,” Loewengart said in a phone interview.
Instead of particular data informing Tuesday’s trading session so far, Loewengart said “it’s more about investors still trying to digest what lies ahead in the form of further contagion or stricter monetary policy.”
Investors hoped to gain more clarity — and more confidence — from the federal government’s top financial regulators at the start of two days of Congressional testimony about the supervision of Silicon Valley Bank and Signature Bank which failed earlier this month.
Federal Reserve Vice Chairman for Supervision Michael Barr, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Treasury Undersecretary Nellie Liang testified before the Senate Banking Committee on Tuesday.
The reduced concerns about a credit crunch crimping economic activity are helping push up government bond yields. The 2-year Treasury yield TMUBMUSD10Y, 3.581%, which is particularly sensitive to monetary policy, last week fell below 3.6% but was back to above 4% on Tuesday.
“The U.S. Treasury yield curve has been consistently inverted and declining since early last summer. This ‘bear flattener’ on the yield curve has quickly reversed in recent weeks into a “bull steepener,” meaning that the yield on the 2-year Treasury has been falling more than that of the 10-year note, steepening the curve,” wrote John Lynch, chief investment officer at Comerica Wealth Management.
“We believe the message from the 2-year Treasury bill is one of caution and not a green light for the outperformance of growth and technology names.”
Stocks in the communication services sector SP500.50, -1.02% led the broader S&P 500 index down on Tuesday as an uptick in bond yields put pressure on technology and other growth stocks. The sector dropped over 1%, followed by 0.5% drop of the information technology sector SP500.45, -0.46%.
An important clue to the likely trajectory of Federal Reserve policy will come on Friday when the PCE inflation gauge for February will be published.
Tuesday’s data included advanced U.S. trade balance in goods, showing the deficit in goods increased 0.6% to $91.6 billion in February — basically flat in the month. Meanwhile, advanced retail inventories increased 0.8% and advanced wholesale inventories climbed 0.2% in February.
The S&P Case-Shiller home price index on Tuesday showed prices falling 0.4% from December to January, though prices are still up 2.5% year over year. A separate report from the Federal Housing Finance Agency showed a 0.2% increase in January home prices compared to December.
U.S. consumer confidence in March beat forecasts, rising 104.2 from a revised 103.4. Despite the financial anxiety and stressors out there now, the upbeat numbers show the job market’s strength and consumer hopes for economic improvements.
See: International stocks outperform, decouple from U.S. equities by ‘unusual degree’
Mark Newton, head of technical strategy at Fundstrat observed that the market had proved resilient “at a time when most investors are expecting stock indices to fall” and that traders should note the S&P 500 will soon be entering the usually bullish month of April.
“SPX, DJIA and NASDAQ remain largely range-bound near-term as part of their uptrend from 3/13. This sideways “grind” in prices isn’t necessarily bearish; However, a move back above QQQ-314 and SPX 4040 will be necessary to help jump-start the next leg of the rally,” Newton added.
QQQ, -0.53% is the ticker for the Invesco ETF representing the Nasdaq 100.
Companies in focus
- Shares of Alibaba Group Holding Ltd. BABA, +14.26% ended up 14.3% on Tuesday after an announcement from the Chinese e-commerce giant that it is reorganizing into six business groups with their own CEOs and boards. The company’s six businesses will be its Cloud Intelligence Group, its Taobao Tmall Commerce Group, its Local Services Group, its Cainiao Smart Logistics group, its Global Digital Commerce Group, and its Digital Media and Entertainment Group.
- Walgreens Boots Alliance Inc. WBA, +2.67% shares were up 2.7% after its fiscal second quarter profits beat expectations, in spite profits being lower than a year ago due to less COVID-19 testing and fewer vaccinations. Taking out nonrecurring items, the pharmacy and health care services chain had adjusted earnings per share of $1.16, above FactSet consensus of $1.10.
- Walt Disney Co. DIS, -0.84% shares were nearly flat on Tuesday after the company begins a layoff process this week that will ultimately cut 7,000 jobs. This is “part of a strategic realignment of the company, including important cost-saving measures necessary for creating a more-effective, coordinated, and streamlined approach to our business,” CEO Bob Iger said in a memo.