Stocks End Lower Amid Decline in Tech Shares

By Will Horner and Caitlin McCabe

The Dow Jones Industrial Average gave up early gains Wednesday even though investors piled back into economically sensitive sectors on bets that the U.S. economy will continue to recover.

The index of blue-chip stocks ended the day near flat, down less than 0.1%, as companies ranging from American Express to Chevron to Caterpillar showed relative strength.

The S&P 500 however declined 0.6%, adding to losses it endured Tuesday. The Nasdaq Composite Index fell more sharply, its losses accelerating in afternoon trading. The technology-heavy index had dropped 2% by the 4 p.m. ET close of trading.

Markets have seesawed this week as investors have continued to assess the implications of a recent climb in bond yields, which, despite edging down this week, surpassed 1.7% this month for the first time in more than a year. Money managers are also assessing the valuations on stocks after the major indexes climbed over 70% since the pandemic-fueled rout last March.

"We are now one year into this rally: We've seen a massive decline and a massive rally, and my sense is that markets are just going to pause for breath from here," said Brian O'Reilly, head of market strategy for Mediolanum International Funds. "Gains are going to be much harder to come by for the rest of the year."

Technology stocks have been hit particularly hard by investors' jitters over the rise in bond yields, in part, because future earnings are worth less when bond yields rise. Companies such as Apple, Netflix and Amazon.com, which were among the stocks that led markets higher last year, all have fallen on a year-to-date basis.

Apple fell 0.9% Wednesday afternoon and Netflix lost 1.7%. Amazon.com edged down 0.4%.

Federal Reserve Chairman Jerome Powell has tried to assuage investors by reiterating that the Fed will continue to support the economy until the recovery is more robust. Still, money managers are betting that inflation will climb sharply, and could spur the central bank to raise interest rates or pare back bond purchases.

Mr. Powell on Tuesday told lawmakers that he doesn't think fiscal stimulus would have a large or persistent effect on inflation. He also stressed that policy makers could act to tamp down rising price pressures if needed.

On Wednesday, Mr. Powell and Treasury Secretary Janet Yellen testified before the Senate Banking Committee, with a message similar to Tuesday's before the House Financial Services Committee. Mr. Powell indicated that he isn't concerned about the recent rise in bond yields, saying "it seems that rates have responded to news about vaccination and ultimately about growth."

In the bond market, the yield on the benchmark 10-year Treasury fell Wednesday for a fourth consecutive session, recently trading at 1.624%, down from 1.637% Tuesday. Bond yields rise as prices fall. The yield had closed as high as 1.730% last week, prompting investors to reassess their appetite for risky assets like technology stocks.

"Yields have moved very quickly, and it was a classic case of too far, too fast. Rates are the most overbought they have been since 1994," said Hani Redha, a portfolio manager at PineBridge Investments. "There was a general expectation from markets that the Fed would try to contain any sharp rise in yields and that has not happened, which has been a surprise."

Among the S&P 500's 11 sectors, energy outperformed all other groups for the day. Diamondback Energy and Marathon Oil both gained more than 5%.

Brent crude, meanwhile, rose 5.3% to $64.07 a barrel amid efforts to free a giant container ship stuck in the Suez Canal, blocking all traffic on one of the world's busiest shipping arteries. The Suez Canal is a vital trade route for tankers carrying oil and natural gas.

In corporate news, shares of videogame retailer GameStop fell 19% after its earnings missed analysts' forecasts and the company didn't issue guidance for the year. Still, the meme stock beloved by individual investors is up almost 700% in the year to date.

ViacomCBS fell 20%, on pace for its worst two-day stretch since November 2008. The media company had dropped more than 9% Tuesday after saying it was seeking to raise $3 billion by selling new shares.

Meanwhile, the Russell 2000 index ticked down 0.1%, adding to losses form Monday and Tuesday.

Overseas, the Stoxx Europe 600 ended the day essentially flat, rising less than 0.1%. Internationally, investors have mulled signs that the global economic recovery may take longer than anticipated because of rising Covid-19 cases and extended lockdowns in many countries.

In Asia, stock benchmarks in Hong Kong and Japan led declines, both falling more than 2% by the close of trading. Hong Kong's Hang Seng Index entered correction territory, with a drop of more than 10% from a recent peak in February.

--Joanne Chiu contributed to this article.

Write to Will Horner at [e-mail] and Caitlin McCabe at [e-mail]

(END) Dow Jones Newswires

03-24-21 1620ET