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Stocks Open Lower Ahead of Powell's Comments

02/23/2021 | 09:46am EST

By Joe Wallace

A retreat in technology stocks continued Tuesday as U.S. stocks slid and investors awaited Federal Reserve Chairman Jerome Powell's testimony in Congress on the health of the economy.

The S&P 500 ticked down 0.5%. The benchmark stocks gauge on Monday fell for a fifth consecutive day, its longest losing streak since last February. The Nasdaq Composite Index dropped 2% as technology stocks continued to lead the market lower. The Dow Jones Industrial Average retreated 49 points, or 0.2%.

A sharp rise in yields on U.S. government bonds in recent days has sapped investors' appetite for riskier assets, including stocks. Shares in technology companies, which have powered the broader market higher for much of the past year, are seen as particularly vulnerable. That is because many tech companies' valuations are tied to their future earnings potential. Those profits are less valuable in today's terms when investors apply a higher discount rate.

The rise in bond yields "naturally does cause investors and cause markets to re-examine the view on equities," said Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is beginning to look more attractive for the first time in months, he said.

But "the level at which bond yields become truly problematic for equities is a long way from where we are now," Mr. Jackson added.

The yield on 10-year Treasury notes ticked down to 1.362%, from 1.370% Monday. Yields, which rise as bond prices fall, are lower than they were before the coronavirus pandemic sent markets into a tailspin last year. Investors say it is the speed at which yields have increased, rather than their level, that is hurting stocks.

The move has sharpened focus on Chairman Powell's semiannual report on the economy and monetary policy to Congress. The first of two days of testimony starts with Mr. Powell's appearance before a Senate Committee at 10 a.m. ET.

Mr. Powell is again likely to signal that easy-money policies will remain in place for the foreseeable future. He will probably face questions on the size of the next fiscal stimulus package, interest rates and bond purchases, and the potential for inflation to heat up alongside accelerating economic growth.

European Central Bank President Christine Lagarde on Monday said the ECB was closely monitoring bond yields, comments interpreted by analysts as a sign of discomfort with their recent rise. Mr. Powell is unlikely to follow suit by pushing back on the rise in Treasury yields, according to Remi Olu-Pitan, multiasset fund manager at Schroders.

"At the moment, none of those indicators are flashing red -- they are not even amber yet -- but they are not as green as they were six months ago," she said, referring to the level of yields and expectations of when the Fed is likely to raise interest rates.

Tesla fell almost 5% ahead of the market open, after declining almost 9% on Monday. The move came as the price of bitcoin slid about 8% to $48,740.44, according to CoinDesk.

The latest bout of volatility in cryptocurrency markets followed comments by Tesla Chief Executive Elon Musk, who said over the weekend that prices for bitcoin and ethereum seemed high. The electric-vehicle maker earlier this month disclosed that it had bought $1.5 billion in bitcoin. Mr. Musk has also become a prominent cheerleader for cryptocurrencies.

Shares of technology firms and other stocks that have performed well during the pandemic came under pressure ahead of the opening bell. Palantir Technologies extended its recent slide, losing more than 5% in premarket trading.

Payments firm Square fell roughly 5%. It is due to report earnings after markets close, along with security-software company McAfee.

Home Depot said growth could slow this year, knocking shares by 2.3% in premarket trading.

Overseas, the Stoxx Europe 600 shed 0.8%, led lower by tech stocks. HSBC shares fell 2% after the bank said it would invest an extra $6 billion in Asia in the next five years and could sell its U.S. retail operations.

In Asia, Hong Kong's Hang Seng climbed 1% and China's Shanghai Composite Index slipped 0.2% by the close of trading.

Write to Joe Wallace at Joe.Wallace@wsj.com

(END) Dow Jones Newswires

02-23-21 0946ET

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -1.50% 30932.37 Delayed Quote.2.60%
HANG SENG -3.58% 29043.19 Real-time Quote.6.65%
NASDAQ 100 0.63% 12909.443133 Delayed Quote.3.21%
NASDAQ COMP. 0.56% 13192.345407 Delayed Quote.1.79%
S&P 500 -0.48% 3811.15 Delayed Quote.1.95%
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