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Market Snapshot: Dow falls more than 400 points, Nasdaq finishes 2.2% lower as Treasury yields keep surging

U.S. stocks remained under pressure Monday afternoon, with energy, tech and other growth names bearing the brunt, as Treasury yields continued to soar amid a busy week that features the latest inflation reading and the kickoff of earnings season.

What’s happening

The Dow Jones Industrial Average
DJIA,
-0.60%

fell 277 points, or 0.8%, to 34,444.

The S&P 500
SPX,
-1.08%

was down 59 points, or 1.3%, at 4,429.

The Nasdaq Composite
COMP,
-1.45%

slumped 240 points, or 1.7%, to 13,471.

The tech-heavy Nasdaq slumped 3.9% last week, its worst performance since late January, joining the S&P 500 in breaking a string of three consecutive weekly gains. The Dow fell for a second week.

What’s driving markets

The yield on the 10-year Treasury
TMUBMUSD10Y,
2.776%

rose to its highest level since 2019, topping 2.77% as a selloff extended to a seventh straight session. Yields move in the opposite direction to prices.

The rise in bond yields is acting as a headwind for stocks, particularly tech and other growth stocks in which valuations are based on expected profit and cash flow far into the future. Higher yields on risk-free Treasurys mean those future flows are less valuable in present terms.

“Even if the US earnings season — which gets underway this week — reveals decent growth in profits, we doubt that expectations for earnings will continue to be revised higher,” said Oliver Allen, markets economist for Capital Economics. “This informs our forecast for meagre gains in the U.S. stock market over the rest of this year,” Allen wrote in a note on Monday.

Ahead of bank earnings and inflation data later in the week, traders were left focusing on the health of the market.

Read: U.S. banks are facing body blows from Ukraine war and a slump in investment banking activity

Michael Darda, chief economist and market strategist at MKM Partners, said the S&P 500 is still above fair value even with the recent pullback. He said that for the equity risk premium — the earnings yield minus the bond yield — to move back to its five-year average, one of four things would have to happen: bond yields fall by around 100 basis points, earnings rise about 20%, the stock market falls about 17%, or some combination of the three.

“Our valuation work shows that financials remain the most attractive cyclical sector while healthcare is the most attractive defensive sector. High valuation tech across the capitalization structure remains an ‘avoid’ or a short, in our view,” said Darda.

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Meanwhile, Charles Evans, head of the Federal Reserve’s regional bank in Chicago, said a 50 basis point rate hike in May could now be “highly likely.”

Stocks to watch

Elon Musk remained in the headlines after Twitter Inc.
TWTR,
+3.16%

Chief Executive Parag Agrawal said the Tesla Inc.
TSLA,
-3.75%

chief “has decided not to join our board.” Twitter had announced last week that Musk would join the board after regulatory filings revealed that he had become the social-media platform’s top shareholder. Twitter shares rose 2.8%.

The impact of China’s lockdowns were on display as electric-vehicle maker Nio Inc.
NIO,
-0.53%

said it would have to suspend production due to disruptions to its supply chain. Nio’s American depositary shares were down 0.5%.

Shares of Shopify Inc.
SHOP,
+4.03%

rose 3.5% after the Canada-based e-commerce software company said it was planning for a 10-for-1 split of its common stock, in an effort to make its shares “more accessible to all investors.”

Sailpoint Technologies Inc. shares
SAIL,
+29.22%

surged 29% after the cybersecurity company confirmed an agreement to be acquired by private equity firm Thoma Bravo in a deal valued at $6.9 billion.

Veru Inc. shares
VERU,
+206.43%

nearly tripled after the biopharmaceutical company announced positive results from a Phase 3 trial of its oral COVID-19 treatment.

How other assets are trading

The ICE U.S. Dollar Index
DXY,
+0.13%
,
a measure of the currency against a basket of six major rivals, was up 0.2%.

Oil futures retreated, with the U.S. benchmark
CL.1,
-4.27%

down 4% to trade near $94.30 a barrel. June gold futures
GCM22,
+0.38%

climbed $2.60, or 0.1%, to settle at $1,948.20 an ounce.

Bitcoin
BTCUSD,
-6.27%

slumped 6.5% to trade near $40,371.

The Stoxx Europe 600
SXXP,
-0.59%

and London’s FTSE 100
UKX,
-0.67%

finished down by 0.6% and 0.7%, respectively.

Stocks slumped in Asia, with the Shanghai Composite
SHCOMP,
-2.61%

ending 2.6% lower, while the Hang Seng Index
HSI,
-3.03%

fell 3% in Hong Kong, and Japan’s Nikkei 225
NIK,
-0.61%

shed 0.6%.

— Steve Goldstein contributed to this article.

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