Investment Commentary – September 28, 2021
Year to Date Market Indices as of September 28, 2021
• Dow 34,229 (12.29%)
• S&P 4,352 (16.15%)
• NASDAQ 14,546 (13.05%)
• Gold $1,732 (-8.87%)
• OIL $74.76 (54.44%)
• Barclay Bond Aggregate (-2.80%)
• Fed Funds Rate 0-0.25 (0-0.25)
• Annual Inflation Rate 5.4% (As of 8/11/21)

Nasdaq tanks 2.8% in worst day since March as yield spike hits tech stocks, Dow drops 570 points

U.S. stocks fell sharply on Tuesday, with tech names dragging down the broader markets as Treasury yields traded near three-month highs and lawmakers in Washington continued their budget stalemate.

The Nasdaq Composite dropped 2.83% to 14,546.68 for its worst day since March and the S&P 500 shed 2.04% to finish at 4,352.63. The Dow Jones Industrial Average lost 569.38 points, or 1.63%, to close at 34,299.99.

The 10-year Treasury yield continued its speedy climb on Tuesday, rising as high as 1.567% as investors bet the Fed would carry through on its promise to curb its emergency bond-buying stimulus as inflation jumps. The 10-year yield, which traded as low as 1.13% as recently as August, has reversed dramatically to the highest levels since June after the Fed signaled last week it would taper its $120 billion in monthly bond purchases “soon.”

“The market’s been steadily coming around to the reality that yields were awfully low relative to the fundamentals. Now the Fed is shifting, and everybody’s shifting their positions, all at once, as we tend to do,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial research.

Tech shares fell as a rapid rise in rates makes their future cash flows less valuable, and in turn makes the popular stocks appear overvalued. Higher rates also hinder tech companies’ ability to fund their growth and buy back stock.

Facebook, Microsoft and Alphabet lost more than 3%, while Amazon dropped more than 2%. Large chip stocks struggled, with Nvidia sliding 4.5%.

Also weighing on sentiment was a budget showdown in Washington. Senate Republicans blocked a House-passed bill Monday that would have funded the government into December and suspended the debt ceiling until December of 2022.

Congress must approve government funding by Friday to avoid a shutdown, and Treasury Secretary Janet Yellen warned Congress in a letter on Tuesday that lawmakers need to raise the debt limit by Oct. 18 to avoid a government default. President Biden’s massive infrastructure plan also faces an uncertain future.

“The Washington goings-on certainly don’t help, as we have a lot of uncertainty around tax policy and of course the debt ceiling,” said Jeff Buchbinder, equity strategist at LPL Financial.

While tech stocks dragged down the broader market, sectors tied to the economic reopening outperformed and energy names saw a slight gain. Shares of Ford rose 1% after the company announced plans to build new production facilities in the U.S.

News Around The web:

China worries: The week’s choppy results stemmed in part from concern about a potential default by a heavily indebted property development company in China—a situation that could weigh on global economic growth. U.S. stock indexes tumbled around 2% on Monday in response to the rising concerns, then recovered on Wednesday and Thursday as fears eased.

Fed taper outlook: The U.S. Federal Reserve’s widely anticipated pullback of its bond-buying stimulus program might be not so far off. The Fed signaled that it could be ready to start trimming its bond purchases as soon as early November. In addition, it could implement the first in a series of potential interest-rate increases sometime next year.

Bonds’ bumpy ride: Government bonds traded in a wide range, as the yield of the 10-year U.S. Treasury bond fell to as low as 1.29% on Monday before rebounding on Thursday and Friday. It finished the week around 1.46%—the 10-year note’s highest yield in nearly three months.

Washington standoff: U.S. politics loomed larger in financial markets as a potential source of volatility. Congress remained at odds over raising the federal borrowing limit—or debt ceiling—before the government runs out of money to pay its bills sometime over the next month or so. Democratic and Republican leaders also clashed over President Biden’s infrastructure proposals.

https://www.marketwatch.com/ (Market Indices)
https://jasonzweig.com/this-day-in-financial-history/ (This day in Financial History)
https://www.jhinvestments.com/weekly-market-recap (Around the Web & Upcoming Events)
https://finviz.com/groups.ashx (YTD Performance Chart)
https://mishtalk.com/economics/cpi-rises-less-than-expected-but-year-over-year-numbers-remain-elevated
https://www.cnbc.com/2021/09/27/-stock-market-futures-open-to-close-news.html
(Market Indices)
https://jasonzweig.com/this-day-in-financial-history/ (This day in Financial History)
https://www.jhinvestments.com/weekly-market-recap (Around the Web & Upcoming Events)
https://finviz.com/groups.ashx (YTD Performance Chart)
https://mishtalk.com/economics/cpi-rises-less-than-expected-but-year-over-year-numbers-remain-elevated
https://www.cnbc.com/2021/09/27/-stock-market-futures-open-to-close-news.html