The Nasdaq Composite fell sharply for the second straight day on Tuesday as higher interest rates appeared to put pressure on soaring technology stocks.
The tech heavy index lost 1% while the S&P 500 lost about 0.3%. The Dow Jones Industrial Average was the relative outperformer, rising 100 points on the strength of banking and energy stocks.
Social media stocks like Facebook mom Meta and Twitter each fell 1% while Roku was down more than 2%. Zoom Video Communications stocks fell 17% a day after beating earnings estimates, but warned of an impending slowdown as the Covid pandemic wears off and demand for long-distance contacts diminishes
The decline in technology stocks is due to government bond yields skyrocketing following President Joe Biden's decision to re-nominate Fed chairman Jerome Powell. Higher interest rates are often viewed negatively for high growth companies because their future earnings appear less attractive as short-term returns increase.
"We saw some pressure on tech stocks as long-term government bond yields have now risen for day two. That weighs on valuations. The Zoom gains didn't help today, which highlights some of the dynamics in these very high-growth parts." of the market that … margin growth is slowing, "said Angelo Kourkafas, investment strategist at Edward Jones.
Powell's renomination was universally welcomed by Wall Street, but moves in the Treasury market have been sharp. The benchmark 10-year government bond yield traded near 1.66% on Tuesday, up from around 1.54% on Friday. The returns move in the opposite direction to the prices.
“With a Powell-led Fed, we expect the pace of QE taper to follow the data and likely accelerate if inflation rates continue at the pace of the October issue and rate hikes soon follow the taper (June at current pace ). The market believes this Fed move will keep inflation in control, "Aptus Capital Advisors' portfolio manager John Luke Tyner said in a statement to clients.
"As the market expects a more restrictive response to current inflation, time will tell if that will be enough as Powell is well-established in the temperate camp of FOMC politics," he added.
In other earnings news, Best Buy's shares also fell sharply after the company announced that comparable sales and gross profit margin could decline in the fourth quarter compared to the same period last year.
On the plus side, chipmaker Western Digital was one of the top performers in early trading after upgrading from Mizuho. Energy stocks also rose after President Joe Biden announced Tuesday that he would tap into strategic oil reserves to bring gas prices down at a time when inflation was at its highest level in three decades. Oil prices had fallen in the past few days amid rumors that Biden would take the move.
Bank stocks rose as did interest rates, with JPMorgan stocks climbing more than 2%.
Tuesday's moves come after the market slid into closing on Monday after the S&P 500 and Nasdaq hit intraday records earlier in the session. The Nasdaq closed 1.26%.
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While trading is likely to slow because it is Thanksgiving week and the Fed's chief decision is behind the market, investors will be watching some economic data to be released on Tuesday, including the Philly Fed. Other data released later in the week includes weekly jobless claims, a GDP update, personal income and consumer confidence.
Investors are juggling concerns about the coronavirus abroad, too. Chancellor Angela Merkel warned of an increase in the virus.
"Although the number of Covid cases has increased around the world, there is not much evidence that the US economy is coming to a standstill like it has in the past," said Jim Paulsen, Leuthold Group's chief investment strategist. "For example, the travel forecast for the Thanksgiving holiday is the strongest since before the pandemic."
US markets will be closed for Thanksgiving Thursday. The exchange closes early at 1 p.m. ET on Friday.