S&P 500 holds slight gain, Nasdaq falls as 10-year Treasury yield moves higher

U.S. stocks held on to slight gains Wednesday as the 10-year Treasury yield swung higher in afternoon trading.

The Dow Jones Industrial Average was up 80 points, or 0.2%, and the S&P 500 was up just 0.1%. The tech-heavy Nasdaq Composite gave up its early gains and fell 0.3%. On Tuesday, the Nasdaq Composite posted its worst day since March amid a spike in bond yields.

The 10-year Treasury Treasury yield eased on Wednesday morning to trade near 1.5% but bounced back above 1.54% in afternoon trading. The yield touched a high of 1.567% Tuesday, the current high-water mark for a weeklong run that has put pressure on growth stocks.

Tech stocks, which were hit hardest during Tuesday’s market rout, bounced at the open but slipped as the session progressed. Apple and Netflix held on to healthy gains but semiconductor stocks weighed on the sector. Shares of Micron slipped more than 2% after it gave an earnings and revenue outlook for the first quarter of 2022 that missed consensus estimates. Nvidia and Advanced Micro Devices also declined.

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Meanwhile, defensive stocks performed well as the utilities sector outperformed. Additionally, aerospace giant Boeing rose more than 3% to be one of the the best performers in the Dow. Energy stocks were steady after outperforming earlier in the week.

“Higher bond yields post last week’s more hawkish [Fed], along with higher oil prices, stabilization in high frequency economic indicators, and evidence that the latest COVID surge in the US has peaked, have pressured the Growth trade and bolstered the Value and Small Cap trades – a shift in leadership/ rotation that’s become yet another hurdle for the S&P 500 given the index’s heavy bias towards secular growth,” Lori Calvasina from RBC Capital Markets said in a note. “Our bottom line, we think choppy conditions in US equities will persist a while longer.”

Shares of discount retailer Dollar Tree jumped 16%, making it a top performer in the S&P 500, after the company announced that it was increasing its stock buybacks and experimenting with higher prices in some locations.

The issues for chipmakers and price hikes by retailers come amid growing concern about supply chains, which have seen continued disruptions from the Covid-19 pandemic.

Fed Chair Jerome Powell said at a European Central Bank event on Wednesday that it was “frustrating to see the bottlenecks and supply chain problems not getting better, in fact at the margins apparently getting a little bit worse. We see that continuing into next year probably, and holding up inflation longer than we had thought.”

The debt ceiling debate in Washington has also weighed on equities. Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi Congress has until Oct. 18 to raise or suspend the debt ceiling and that failure to do so would have severe consequences for the economy. JPMorgan Chase CEO Jamie Dimon said the bank was prepping for the possibility of the U.S. hitting the debt limit.

Meanwhile, Senate Majority Leader Chuck Schumer is pushing for his chamber to vote on a bill on Wednesday that would extend government funding through early December.

On the economic data front, pending home sales rose 8.1% in August, according to the National Association of Realtors, well above the 1.2% expected by economists surveyed by Dow Jones.

On Tuesday, the Nasdaq Composite dropped 2.83% to 14,546.68 for its worst day since March. The S&P 500 shed 2.04% and the Dow Jones Industrial Average lost 569.38 points, or 1.63%.

The Dow and S&P are now down 2.6% and 3.5%, respectively, for September. The Nasdaq is down more than 4.5%.

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