Stocks ended lower Tuesday, a day after setting records. Shares of many growth-oriented companies lead the market. Interest rates slipped, driving the action within the stock market.
The
fell 96.95 points, or 0.29%, to close at 33,430.24. The
slipped 3.97 points, or 0.10%, to end at 4,073.94, and the
was nearly flat, ending in the red by 7.21 points, or 0.05%, to close at 13,698.38. The biggest gainer in the S&P 500 was
(ticker: ILMN), a supplier of gene-decoding systems, saw shares rise 7.7% after a strong earnings report.
The 10-year Treasury yield slipped to 1.66% from 1.7%. It has been on an impressive run this year, almost doubling as expectations for inflation and economic demand have risen as the economy turns a corner from the pandemic. While the yield is still below the future expected inflation rate—a gap that represents upside for yield—it isn’t necessarily surprising to see the gains take a pause. One pressure point on U.S. bond yields is that rates on some European government bonds have been slipping in response to more-tepid economic expectations in the face of an uptick in Covid-19 cases and lockdowns. The 10-year German Bund yield has slipped to negative 0.31% from negative 0.26% on March 18. In that time, the U.S. 10-year yield is also off a touch because bond investors are flocking into the higher-yielding U.S. market. Higher bond prices mean lower yields.
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“Once [the] rest of the world [Covid-19] case growth moves lower and [the] rest of world opens up like the U.S., yields will move higher again,” wrote Dennis DeBusschere, head of portfolio strategy research at Evercore, in emailed remarks to the press.
That clears the way for growth names to outperform, with the
an index of large-capitalization technology stocks, edging down just 0.1%. Some growth names had standout days, with
(TWTR) soaring 4.3%. Growth firms expect to see the bulk of their profits potentially years down the line; lower long-term rates boost the value of those future profits, making growth stocks more sensitive to changes in rates. And as rates have taken that slight dip since March 18, the index is up 6.2%.
Meanwhile, shares of mature companies now in their earnings prime took a back seat. The Dow, which is heavily weighted towards such value stocks, has already risen 9% year to date. The
ETF (XLI), up in the low double digits for the year so far, fell 0.2% on the day. Bank stocks hit a rut, with the
ETF (KBE) down 0.4%. Lower long-term rates hurt bank profitability.
Still, defensive areas with value stocks had a strong day. Large-capitalization consumer staples and utilities companies, which tend to offer juicy dividend yields—certainly higher than treasury yields—do see a tailwind when risk-free rates fall. That makes dividends more attractive. The
ETF (VDC) rose 0.3%. The
rose 0.45%.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com