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The stock market was falling Wednesday, as bond yields popped to new heights. Markets await minutes from the Federal Reserve’s latest meeting to be released this afternoon.
Shortly after the open, the
Dow Jones Industrial Average
retreated 283 points, or 0.8%, after the index dropped 280 points on Tuesday. The
S&P 500
fell1.1%, with the
Nasdaq Composite
sliding1.9%.
The 10-year Treasury yield rose to 2.64% from a 2.55% closing level Tuesday, after it had jumped from 2.4% the previous day. This came as Federal Reserve Governor Lael Brainard said Tuesday that the central bank would begin rapidly reducing its balance sheet in May. That would put downward pressure on bond prices, lifting bond yields. It’s another way for the Fed to raise borrowing costs in order to cool the economy, which has produced high inflation in the pandemic era.
Treasury yields rose overnight “in a follow-through to Brainard’s hawkish comments,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
Those higher long-dated bond yields are a problem for tech stocks. Rising yields on long-term government bonds make future profits less valuable—and many fast-growing tech companies are valued on the basis that they will produce a chunk of their profits many years in the future. And as these stocks get more expensive, the more they can decline when bond yields pop. The Nasdaq had risen 16% from its mid-March closing low of the year to March 29, before beginning its most recent drop.
“There is not much wiggle room for stocks to brush off rising bond yields,” wrote Martin Roberge, portfolio strategist at Canaccord Genuity.
Things in the market could change, though, when the Fed’s minutes are published this afternoon. Since stock markets are now anticipating the balance sheet reduction, Wednesday could be a case of sell the rumor and buy the news. Simply put, harsh selling has taken hold on the likelihood that the Fed is soon to reduce its bondholdings. Upon news that the reduction will commence, market participants may buy stocks as the bad news would not have gotten any worse.
Overseas, London’s
FTSE 100
lost 0.6%, and Tokyo’s
Nikkei 225
declined 1.6%.
Here are six stocks on the move Wednesday:
JetBlue Airways
(ticker: JBLU) stock fell 6.2%. The budget airline is in competition with
Frontier Group Holdings
(ULCC) to buy
Spirit Airlines
(SAVE), making an unsolicited $3.6 billion bid for the company. Spirit stock was down 2%, and Frontier shares lost 7.1%.
Aptiv
(APTV) stock slipped 0.7% even after getting upgraded to Buy from Underperform at Bank of America.
CarMax
(KMX) stock dropped 3.4% after getting downgraded to Neutral from Buy at Bank of America.
Avis Budget Group
(CAR) stock dropped 8.4% after getting downgraded to Underperform from Neutral at Bank of America.
Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com
Read More: Stocks Are Sliding Ahead of Fed Minutes