Stocks Sink Most in Six Months After Recent Runup in Treasury Yields
A bad week on Wall Street turned dismal Thursday after the relentless surge in Treasury yields sapped demand for risk assets. In the end, US stocks suffered the biggest drop in six months as investors recalibrate for a world where rates sit at levels not seen in a generation.
The S&P 500 plunged 1.6% and the Nasdaq 100 fell almost 2%. The two indexes are on track for the worst quarter in a year. The 10-year Treasury yield pushed toward 4.5%, up more than 30 basis points in just three weeks. Leading the way down for equities were profitless technology companies, a group whose lofty valuations have become harder to justify as investors turn to other asset classes for returns.
Stocks had been able to withstand higher rates for months as investors plowed cash into big technology firms. But the latest move in Treasuries, sparked by the Federal Reserve’s signal that policy rates will remain elevated well into next year, has forced a reconsideration of investment theses across Wall Street — especially among money managers who started chasing the big-tech rally earlier this quarter.
“After the run in tech stocks this year and given lofty valuations, it doesn’t pay to step on the gas and add exposure right now,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors, whose firm has rotated out of so-called growth stocks and into dividend-paying value shares. “If you’re getting yield in other areas, why subject clients to additional risks in the stock market?”