Nasdaq drops 2% as tech shares are slammed on higher rate fears, Dow falls 400 points
Stocks fell on Monday as interest rates continued to climb on concerns over tighter monetary policy from the Federal Reserve that could slow economic growth.
The S&P 500 dropped 1.2%, while the tech-heavy Nasdaq Composite declined 1.7%. The Dow Jones Industrial Average fell 180 points, or 0.6%.
Those moves came as the 10-year Treasury yield hit a high of 2.78% early Monday morning, or its highest level since January 2019 when the 10-year yielded as high as 2.799%. Yields move inversely to prices and 1 basis point is equal to 0.01%.
“If we were to stack up what’s moving the markets today, I think we’re just mirroring what we’re seeing in the Treasury yield environment,” said Art Hogan, chief market strategist at National Securities. “And it’s hard to know what’s going to break that cycle except for a couple of days/weeks where rates either stabilize or are starting to pull back a bit.”
Concerns over higher interest rates have spurred investors to drop more risky assets, such as tech stocks that led losses on Monday. Microsoft declined 3.8%. Semiconductor stocks such as Nvidia and Advanced Micro Devices fell 5.3% and 4.3%, respectively.
Oil prices dropped on Monday amid fears that Covid lockdowns in China would depress global demand. International benchmark Brent crude declined 3.2% to trade at $99.45 per barrel. Meanwhile, West Texas Intermediate crude futures dropped 3%, to trade at $95.33 per barrel.
To be sure, airline stocks bucked the broader market’s negative trend, as Delta Air Lines spiked 4%. Alaska Air Group was up 2.7%, American Airlines Group jumped 2.8%, Southwest Airlines ticked upward 2.6% and United Airlines Holdings jumped 2.6%.
Meanwhile, AT&T popped 5.7% after spinning off its old WarnerMedia to merge with Discovery. JPMorgan analysts liked the decision, giving AT&T an overweight rating and saying the stock is now trading at a discount.
Twitter’s stock was on the move after CEO Parag Agrawal revealed that Elon Musk abandoned his plan to join the company’s board. Shares for the social media company dropped more than 8% in the premarket, but had recovered to trade just 1% lower by the open.
Monday’s moves come as traders fret over rising inflation in the U.S. On Tuesday, Wall Street will get the latest reading on the consumer price index — which economists expect will reflect another sharp jump in prices.
Cleveland Fed President Loretta Mester told CBS’ “Face the Nation” on Sunday that she still believes the Fed can get inflation under control without causing major damage to the economy.
“If you look at the risks, given what’s happening in the world and in the economy, there is an increased risk [of recession],” she said. “But I remain optimistic, and certainly my modal forecast on what is going to happen this year is that the expansion will continue.”
Mester added that the Covid lockdowns in China will “exacerbate” the supply chain issues that are contributing to inflation in the U.S.
Later this week, the first-quarter earnings season will hit its stride with some major banks and airlines reporting earnings. On Wednesday, JPMorgan and Delta Air Lines will report their earnings before the bell. On Thursday, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo are expected to report before markets open.
Correction: A previous version of this story misspelled Mester’s last name.