Global stocks fell on Thursday after US stocks fell sharply the day before, with rising bond yields leading investors to question the sky-high valuations of tech stocks in particular.
S&P 500 futures fell 0.3% after falling sharply on Wednesday, while Dow Jones futures slipped 0.15%. Futures on the high-tech Nasdaq 100 index fell 0.43% as investors cooled on some of the flashiest names in the market.
A rise in bond yields baffled investors on Wednesday, causing the Nasdaq to fall 2.7%, Tesla falling 4.8% and Amazon 2.9%. The Nasdaq has climbed more than 80% from its March lows, causing some investors to be concerned.
Nerves spread to Asia overnight, with China’s CSI 300 falling 3.15% and Japan’s Nikkei 225 down 2.13%.
European stocks then opened lower, with the continent-wide Stoxx 600 falling 0.64% to start trading and the UK’s FTSE 100 1.08%.
The catalyst for stock market nervousness was rising bond yields, with the 10-year US Treasury yield hitting 1.5% on Wednesday before slowing down. It fell 0.6 basis point to 1.464% Thursday morning.
Extremely low yields have supported the boom in stocks – and tech stocks in particular – by pushing investors into fast-growing stocks with high yields.
But higher yields are starting to make stocks less attractive, while increasing the costs of borrowing and eroding the value of future earnings.
Yields rose as traders sold government bonds at a rapid pace, with yields moving inversely to prices.
Investors believe growth and inflation will pick up sharply in 2021, forcing them to demand higher yields on bonds. Some also believe central banks could reduce support to economies, pushing up yields.
The eyes of the market will therefore be on Federal Reserve Governor Jerome Powell, who is due to speak to the Wall Street Journal’s jobs summit Thursday at 12:05 p.m. EST.
“Markets will be looking for signals from Mr. Powell regarding his comfort in the face of rising bond yields, inflation and any signs of a potential change in the Fed’s forecast,” said Jeffrey Halley, senior market analyst at the Oanda exchange company. “He will have to choose his words very carefully.”
Hussein Sayed, chief market strategist of the FXTM trading platform, said: “Inflation expectations in the United States over the next five years reaching 13-year high and long-term borrowing costs on the rise, central banks face daunting challenges to comfort investors. “
“Financial conditions are tightening although monetary policy is loose and policymakers clearly do not intend to raise interest rates anytime soon.”
The dollar index climbed 0.27% Thursday morning to 91.19, supported by rising bond yields.
In oil markets, Brent crude fell 0.66% to $ 63.63 per barrel while WTI crude slipped 0.82% to $ 60.79 per barrel as producers in OPEC + were preparing to meet to discuss production plans.
Bitcoin fell about 5% in a 24-hour period to $ 49,052 on Thursday morning.