The culprit behind the recent stock market sell-off was the rapid rise in 10-Year U.S. Treasury bond yields. The 10-year Treasury yield remained above 1.4%, after surging to 1.6% in the previous day session to its highest level since February 2021 and more than 0.5% higher since the end of January, according to CNBC.
The spike in the 10-year yield , which is used as a benchmark for mortgage rates and auto loans, is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead. The sheer pace of the rise has also had the effect of dampening investors’ appetite for richly valued areas of the market like technology and other growth stocks. Higher rates reduce the value of future cash flows so they can have the effect of compressing equity valuations.
All three stock benchmarks — Dow Jones Industrial Average , Nasdaq and S&P500 — were tracking for weekly losses ahead of the final trading day of February. The Nasdaq was down nearly 7% from its February 12, 2021, record closing high. The Dow and S&P 500 both remain solidly in the green for the month. However, the S&P 500 was off almost 2.7% from its last record closing high, also on February 12, 2021, and the Dow had its worst day in nearly a month on Thursday.
Additionally, inflation concerns are being stoked on the thought that the $1.9 trillion COVID-19 stimulus bill — which passed the House of Representatives — on top of accelerating growth could overheat the economy.
Economists and investment managers say the bond market is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead.
What to watch today: Stocks try to recover from Thursday's tech-led rout https://t.co/zNlAmp3JIQ
— CNBC (@CNBC) February 26, 2021
References: