Stocks took a sharp dive Thursday afternoon after widely anticipated remarks from Federal Reserve Chairman Jerome Powell heightened recent concerns that rising Treasury yields could eventually move investors away from stocks and into the risk-free asset class.
As of 1:55 p.m. ET, the Dow Jones industrial average, which fell 120 points Wednesday, was sinking 675 points, or 2.2%, while the S&P 500 fell 2.5%, and the tech-heavy Nasdaq–which far underperformed the broader market Wednesday–shed 3.3%.
The yield on 10-year Treasurys–which tend to move inversely to stocks, especially when investors expect inflation–shot up 55 basis points almost immediately after Powell said inflation will pick up as the economy recovers and the pandemic subsides.
The broader market’s ongoing tepidness continues to be outshined by pockets of trading mania: Tanger Outlet shares, which soared as much as 20% Thursday morning on heightened retail interest, were down 4% after Powell’s speech.
Meanwhile, Thursday morning jobs data show another 745,000 people filed new claims for benefits last week–an increase of nearly 10,000 from the previous week but largely in line with economist forecasts.
Among firms outperforming in the S&P, shares of Kroger are up 2.5% after the grocer shattered Wall Street expectations with sales growth of nearly 11% and profits of about $837 million thanks in part to an expansion of its home-delivery and in-store pickup services.
On the deal front, shares of payments fintech Square are down 7% after the firm–led by billionaire Jack Dorsey–announced it will acquire a majority stake in entertainment mogul Jay-Z’s embattled music service, Tidal, for $297 million.
Wall Street is laser-focused on the impending economic recovery that should kick into overdrive once the nation nears herd immunity. That’s led investors to rotate away from the technology stocks heading up market gains last year and into cyclical stocks in sectors hit hard by the pandemic. Meanwhile, concerns over rising Treasury yields have left the three major indexes floundering since closing at record highs in February. The Nasdaq and S&P are about 8% and 3% off their mid-February peaks, respectively, while the Dow has ticked down 2% from a late-February high.
“The violent rotation will continue as more stimulus arrives, herd immunity is achieved and growth booms,” says Vital Knowledge Media Founder Adam Crisafulli, who notes that meme-stock trading patterns could become a core macroeconomic concern as the “nonsense activity” spreads to more serious firms like Rocket Companies. In the meantime, “Covid beneficiary stocks and high-multiple momentum names will face ongoing valuation headwinds while investors flock to traditional cyclical stocks along with those levered to reopening.”
As evidenced by Tanger’s temporary rise, the meme-stock frenzy seems far from over. GameStop, down 2%, is still up more than 200% since last week, mortgage lender Rocket Companies is falling another 2% after plunging 30% from a peak on Tuesday, and AMC is still up 300% this year.