S&P 500 Drops After Logging Best Day Since June

By Caitlin McCabe and Anna Hirtenstein

U.S. stocks fell Tuesday in a choppy trading session as investors again pulled back from riskier assets amid a continuing stretch of volatility in both bonds and stocks.

Financial markets have seesawed in recent days as investors have tried to make sense of a sharp and swift rise in bond yields. On Monday, it seemed, some of those jitters about rising interest rates had subsided, propelling the S&P 500 to its best day in nearly nine months.

Yet by Tuesday, much of that optimism had stalled, sending all three major stock indexes lower, with technology stocks in particular dragging them down. The S&P 500 lost 31.53 points, or 0.8%, to 3870.29, while the Nasdaq Composite tumbled 230.04 points, or 1.7%, to 13358.79.

The Dow Jones Industrial Average, meanwhile, fell 143.99 points, or 0.5%, to 31391.52.

Investors in recent weeks have been carefully watching the yield on the benchmark 10-year U.S. Treasury note, which has moved up rapidly in 2021, rattling a stock market that has posted near-continuous gains since the coronavirus-induced selloff of last year. All three indexes finished the last week of February lower as investors retreated from stocks while they weighed the implications of higher rates.

On Tuesday, the yield on the 10-year U.S. Treasury note fell to 1.413%, from 1.444% Monday, a drop that marked three consecutive sessions of declines. Even so, it wasn't enough to appease stock investors.

Driving some of the retreat from stocks is a concern that the fast rise in rates may prompt the U.S. Federal Reserve to begin tightening monetary policy sooner than expected -- a fear that Fed officials have tried to allay recently. Fed Chairman Jerome Powell told members of Congress last week that the central bank will continue to maintain low interest rates and continue asset purchases until more progress has been made on its employment and inflation goals.

Those commitments were reiterated Tuesday by Federal Reserve Gov. Lael Brainard, who similarly said the economy remains far from the central bank's goals. As concerns about inflation have swelled among investors, she also noted that "a burst of transitory inflation seems more probable than a durable shift above target in the inflation trend and an unmooring of inflation expectations to the upside."

"There's going to be a tug of war between better economic data, better earnings data and Fed policy" for the foreseeable future, said Keith Lerner, chief market strategist at Truist Advisory Services.

"Because the Fed has played such a large role in market recovery, investors are sensitive" to even the perception that monetary policy could change, he added.

Shares of technology companies were among those that tumbled Tuesday, continuing a trend that began last month, in part, because technology stocks are particularly sensitive to rising rates. The selloff in the sector has also caused some investors to re-evaluate their positioning and spurred some to hunt instead for deals in cyclical stocks.

The S&P 500's materials sector finished Tuesday as the only one of the index's 11 groups to end higher, rising 0.6%. The information technology sector, in contrast, suffered the steepest decline of the groups, losing 1.6%.

Among individual stocks, Apple lost $2.67, or 2.1%, to close at $125.12. Twitter dropped $3.96, or 5.1%, to $73.67. And Microsoft lost $3.07, or 1.3% to $233.87.

Still, there were bright spots in the market: Payments company Square climbed $11.20, or 4.7%, to $252.20 after it said its industrial bank has begun operating.

And companies that tumbled sharply during last year's market rout also surged. Cruise line Carnival added $1.28, or 4.9%, to $27.59, while American Airlines Group added 26 cents, or 1.2%, to $21.44. Investors and analysts expect an increase in consumer demand for travel services once larger swaths of the population receive the Covid-19 vaccine.

"We're absolutely seeing a shift toward value" in stock markets, said Fahad Kamal, chief investment officer at Kleinwort Hambros. "European equities are beneficiaries of this, a lot of major companies are value linked."

In overseas markets, the pan-continental Stoxx Europe 600 added 0.2%.

In Asia, most major benchmarks finished the day down. China's Shanghai Composite Index and Hong Kong's Hang Seng both fell 1.2%. South Korea's Kospi Index rose 1%, buoyed by the prospect of a new pandemic relief spending package.

Meanwhile, in commodities, futures on Brent crude oil, the global benchmark, fell 1.6% to $62.70 a barrel, ahead of a planned Thursday meeting of the Organization of the Petroleum Exporting Countries and its partners.

Write to Caitlin McCabe at [e-mail] and Anna Hirtenstein at [e-mail]

(END) Dow Jones Newswires

03-02-21 1714ET