Market

Dow Plunges 550 Points As Meme Stocks Soar And Yield Concerns Mount

Topline

Concerns that rising bond yields and problematic inflation could tank stocks briefly subsided after dovish testimony from Federal Reserve Chairman Jerome Powell on Wednesday, but markets were back on shaky ground Thursday as investors eye “absurd valuations” and worry that the Fed could change its tone once the economic recovery pushes forward.

Key Facts

The Dow Jones industrial average, which closed at a record high Wednesday, plunged 561 points, or 1.8%, on Thursday, while the S&P 500 and tech-heavy Nasdaq sank a sharper 2.5% and 3.7%, respectively.

Shares of Twitter jumped 3% after the firm told analysts at an event that it plans to double revenue and amass 315 million daily active users by 2023, but other tech stocks were battered, with Tesla, Facebook and Amazon falling 8%, 4% and 3%, respectively. 

Best Buy was also among firms heading up losses in the S&P, plunging 9% after the electronics retailer posted worse-than-expected comparable-store sales that jumped 13%, compared to expectations of about 15% growth.

Meme stocks GameStop and Koss Corp. continued an unusual tear, surging 19% and 16%, respectively, following a spike in trading volume that puzzled even the Reddit investors who helped prop up prices of heavily shorted stocks last month.

Meanwhile, new unemployment claims totaled a much lower-than-expected 730,000 last week (on a seasonally adjusted basis), down from 841,000 claims the prior week as vaccine distribution ramped up and new coronavirus cases fell.

Crucial Quote 

“Thursday’s stock market declines are largely driven by the 10-year Treasury yield breaching the crucial 1.5% level; higher Treasury yields call for lower stock market valuations, and rising bond yields make stocks look less attractive,” says James McDonald, the CEO of Los Angeles-based Hercules Investments, adding that technology stocks are the most vulnerable to rising yields, especially when compared to cyclical stocks in industries hard-hit by the pandemic.

Chief Critic

“Not all momentum stocks are the same,” Vital Knowledge Media Founder Adam Crisafulli said Thursday morning. “There are amazing companies with elevated–but not ridiculous–valuations, like Apple, Facebook, Alphabet and Microsoft; amazing companies with ridiculous valuations, like Roku and Shopify; and then questionable companies and assets with absurd valuations (most anything attached to electric vehicles, crypto and a few other names fall into this category).” The latter two buckets, he notes, are “especially vulnerable” in an environment with rising rates.

Tangent

Domestic stocks lagged global markets. Japan’s Nikkei 225 jumped 1.7% Thursday, while Shanghai’s SE Composite ended the day up 0.6%. The United Kingdom’s FTSE 100 fell 0.1%.

Big Number

$1.3 billion. That’s how much revenue Coinbase has nabbed over the past year. The cryptocurrency exchange on Thursday morning unveiled its long-awaited S-1 filing ahead of an expected initial public offering that could value the firm at more than $100 billion. The profitable firm is operating on a lofty 25% margin.

Further Reading

New Unemployment Claims Fell To 730,000 Last Week (Forbes)

GameStop’s Frankfurt-Listed Shares Up More Than 200%, Outperforming Surge In U.S. (Forbes)

GameStop Shares Surge 100% In A Day, Reddit Group Rejoices (Forbes)

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