U.S. stocks fall as Treasury yields continue to surge

Twitter shares lower after social-media company says Musk won’t take a board seat after all

U.S. stocks were under pressure Monday, with tech and other growth names bearing the brunt, as Treasury yields continued to soar ahead of a busy week in inflation data.

What’s happening
  • The Dow Jones Industrial Average DJIA fell 140 points, or 0.4%, to 34,580.
  • The S&P 500 SPX was down 40 points, or 0.9%, at 4,448.
  • The Nasdaq Composite COMP slumped 199 points, or 1.5%, to 13,512.

The tech-heavy Nasdaq slumped 3.9% last week, its worst performance since late January, joining the S&P 500 in breaking a string of three consecutive weekly gains. The Dow fell for a second week.

What’s driving markets

The yield on the 10-year Treasury BX:TMUBMUSD10Y rose to the highest level since 2019, topping 2.75% as a selloff extended to a seventh straight session. Yields move in the opposite direction to prices.

Rising bond yields can be a headwind for stocks, particularly tech and other growth stocks whose valuations are based on the expected profit and cash flow far into the future. Higher yields on risk-free Treasurys mean those future flows are less valuable in present terms.A difficult year for stocks and bonds As bonds slump, equities feel pressure Source: FactSetiShares 20+ Year Treasury Bond ETFE-Mini S&P 500 Future Continuous​ContractE-Mini Nasdaq 100 Index Continuous​Contract2022April-25-20-15-10-505%

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Ahead of bank earnings and inflation data later in the week, traders were left focusing on the health of the market.

Michael Darda, chief economist and market strategist at MKM Partners, said the S&P 500 is overvalued even with the recent pullback. He said that for the equity risk premium — the earnings yield minus the bond yield — to move back to its five-year average, one of four things would have to happen: bond yields to fall by around 100 basis points, earnings to rise about 20%, the stock market to fall about 17% or some combination of the three.

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“Our valuation work shows that financials remain the most attractive cyclical sector while healthcare is the most attractive defensive sector. High valuation tech across the capitalization structure remains an ‘avoid’ or a short, in our view,” said Darda.

Stocks to watch
  • Elon Musk remained in the headlines after Twitter Inc. TWTR Chief Executive Parag Agrawal said Tesla Inc. TSLA chief “has decided not to join our board.” Twitter had announced last week that Musk would join the board after regulatory filings revealed that had become the social-media platform’s top shareholder. Twitter shares fell 1.8%.
  • The impact of China’s lockdowns was on display as electric-vehicle maker Nio Inc. NIO said it would have to suspend production due to disruptions to its supply chain. Nio’s American depositary shares were down 9.6%.
  • Shares of Shopify Inc. SHOP fell 0.4% after the Canada-based e-commerce software company said it was planning for a 10-for-1 split of its common stock, in an effort to make its shares “more accessible to all investors.”
  • Sailpoint Technologies Inc. shares SAIL surged nearly 30% after the cybersecurity company confirmed an agreement to be acquired by private equity firm Thoma Bravo in a deal valued at $6.9 billion.
  • Veru Inc. shares VERU rose nearly 34% after the biopharmaceutical company announced positive results from a Phase 3 trial of its oral COVID-19 treatment.
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How other assets are trading
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.1%.
  • Oil futures retreated, with the U.S. benchmark CL down 4% to trade near $94.50 a barrel. Gold futures GC00 rose 1% to around $1,965 an ounce.
  • Bitcoin BTCUSD slumped 3% to trade near $41,000.
  • The Stoxx Europe 600 XX:SXXP and London’s FTSE 100 UK:UKX were both down 0.5%.
  • Stocks slumped in Asia, with the Shanghai Composite CN:SHCOMP ending 2.6% lower, while the Hang Seng Index HK:HSI fell 3% in Hong Kong, and Japan’s Nikkei 225 JP:NIK shed 0.6%.

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