Nasdaq drops 2.8%, posting worst day since March as Treasury yield jump slams tech stocks

Stocks sank Tuesday, with technology stocks leading the way lower as investors nervously eyed a swift rise in U.S. Treasury yields. 

The Nasdaq, a proxy for technology and growth stocks, underperformed against the other two major stock indexes, dropping more than 2.8% by market close in its worst day since March. The S&P 500 also dropped 2%, while the Dow shed more than 550 points, or 1.6%. A new disappointing report on consumer confidence in September added to the risk-off mood in markets, with the Conference Board’s closely watched Consumer Confidence Index dropping to the lowest level since February as concerns over the coronavirus lingered.

The rapid rotation away from growth and technology stocks also came as Treasury yields added to recent gains. The yield on the benchmark 10-year note (^TNX) jumped more than 5 basis points to top 1.54%, reaching its highest level since June.

“The prospect of higher energy prices, fueling inflation, and rises in bond yields that appear to be pre-empting tighter monetary policy by central banks, have prompted widespread selling across global stock markets,” Chris Beauchamp, chief market analyst at online trading platform IG, said in an email on Tuesday. “As yesterday, it is the highly-valued growth stocks that have taken the brunt of the selling, as investors fret that a lower growth, tighter policy environment will hurt these previous star performers.”

“Undoubtedly, some of the fabled month/quarter-end movements have a part to play here, fund managers being keen to book some profits as Q3 draws to a close,” he added. “This suggests we have some more volatility to come over the rest of the week.” 

Yields, which move inversely to prices, have held at low levels throughout the pandemic, and rising yields are seen in large part as a bet on a strengthening economic environment. However, the rapid rise in borrowing costs also serves as a headwind to “long-duration” growth stocks, which are valued heavily on future earnings.

Oil prices also added to gains, and positive economic data including a much stronger-than-expected durable goods report out Monday helped underpin the move. West Texas intermediate crude oil futures (CL=F) were on track to climb for a sixth consecutive session and broke above $76 a barrel, or the commodity’s highest price since July. And Brent crude oil, the international standard, touched $80 per-barrel level to reach its highest since October 2018.

“Really what you’re seeing is, across asset classes, the market [is adopting] a pro-cyclical view, which means better growth in the future, higher inflation, higher bond yields,” Tom Essaye, The Sevens Report Research Founder, told Yahoo Finance Live. “You’re seeing that from commodities through to equities.” 

Investors also continued to watch developments out of Washington, with lawmakers facing a deadline this week to fund the government by Thursday night to avert a government shutdown. 

The effort to pass a new government budget has been swept into ongoing debates around whether or not to raise the federal debt ceiling and pass an expansive $3.5 trillion reconciliation package, which would advance a number of initiatives central to President Joe Biden’s economic agenda. In a move widely expected, Senate Republicans on Monday evening blocked a bill that would have funded the government through Dec. 3 and also raised the debt ceiling through the end of 2022. While Democratic lawmakers have called for raising the debt limit to be a bipartisan move, Republicans have argued Democrats, as majority members of both chambers of Congress, should increase it without their support.

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen testified before the Senate Banking Committee Tuesday morning about the Fed and Treasury’s responses to the pandemic. In prepared remarks, Yellen addressed the ongoing debt ceiling debate, reiterating her concern over the negative implications to the U.S. economy, should lawmakers fail to take action.

“It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history,” Yellen said in the remarks. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”

For investors, the plethora of overlapping debates in Washington could be a near-term source of more market choppiness. 

“I think there’s the opportunity for volatility to pick up a little bit,” Eric Freedman, U.S. Bank Wealth Management chief investment officer, told Yahoo Finance Live on Monday.

“Not only do you have concerns about the debt ceiling and what legislation may come out, but you also have concerns about when the Federal Reserve may step in, and you also have earnings come up,” he added. “So we’re in that shoulder period for the next couple of days when the only announcements coming from companies tend to be negative ones. We’ve had some of those over the past week, particularly focusing on cost pressures.”

4:04 p.m. ET: Nasdaq accelerates to the downside into market close, posting worst day since March 

Here’s where the three major indexes closed out Tuesday’s session: 

  • S&P 500 (^GSPC): -90.48 points (-2.04%) to 4,352.63

  • Dow (^DJI): -569.38 points (-1.63%) to 34,299.99

  • Nasdaq (^IXIC): -423.29 points (-2.83%) to 14,546.68

2:44 p.m. ET: ‘Whenever you see pullbacks, it makes sense to buy quality names’: Strategist 

Tuesday’s rout across equities came as heavily weighted companies in the technology sector fell sharply, with each of Amazon, Apple, Microsoft and Alphabet sinking.

“Whenever you see pullbacks, it makes sense to buy quality names,” Kevin Simpson, Capital Wealth Planning founder and chief investment officer, told Yahoo Finance Live Tuesday afternoon. “We’ve seen a rotation happening as far as a correction happening for the past few months. There are so many companies that have had 10-15% peak to trough pullbacks — this is one of the first times where we’re seeing it with some of those larger names.”

“So as far as where to put money today … absolutely be looking at financials. Why financials? They’re beneficiaries of rising rates,” he added. “In addition to the financials, also sticking with the thematics of higher rates, and some inflation, also energy names can be a great place to go.”

11:40 a.m. ET: Stocks extend losses, Dow drops 400+ points, or 1.3%

A stock sell-off picked up momentum before noon on Tuesday, with a rise in Treasury yields spooking equity investors. 

The Nasdaq dropped 2.5%, with shares of technology heavyweight Amazon Amazon down nearly 3%. Shares of technology component companies in the Dow led the index lower by more than 400 points, or 1.3%. Microsoft and Salesforce shares were each down about 3%. 

In the S&P 500, only the energy sector was narrowly in the green. The tech-heavy communication services and information technology sectors underperformed during the session.

10:00 a.m. ET: Consumer confidence unexpectedly fell in September, reaching lowest since February

Confidence among U.S. consumers sank to the lowest level in seven months in September as concerns over the ongoing spread of the coronavirus kept individuals jittery about the short-term outlook.

The Conference Board’s monthly Consumer Confidence Index dropped to 109.3 in September, dipping from 113.8 in August. This represented a third straight monthly decline in the index. Consensus economists were looking for the Consumer Confidence Index to tick up to 115.0 in September, according to Bloomberg data. Subindices tracking consumers’ assessments of current conditions as well as expectations for future business, income and labor market conditions also pulled back compared to August.

“Consumer confidence dropped in September as the spread of the Delta variant continued to dampen optimism,” Lynn Franco, senior director of economic indicators at The Conference Board, said in a press statement. 

“Consumer confidence is still high by historical levels—enough to support further growth in the near-term—but the Index has now fallen 19.6 points from the recent peak of 128.9 reached in June,” Franco added. “These back-to-back declines suggest consumers have grown more cautious and are likely to curtail spending going forward.” 

While short-term expectations for inflation eased slightly compared to earlier in the summer, they still remained elevated compared to historical levels, Franco said. 

9:40 a.m. ET: U.S. goods trade deficit increased more than expected in August

The U.S. trade deficit in goods widened by a greater-than-expected margin in August, suggesting businesses were stepping up imports as inventory levels dipped due to supply chain challenges.

The advance U.S. merchandise trade deficit reached $87.6 billion in August, yawning from the $86.82 billion posted in July, according to Commerce Department data on Tuesday. The increase came as imports rose 0.8%, outweighing a 0.7% increase in goods exports.

9:30 a.m. ET: Stocks open lower as Treasury yields climb

Here’s where stocks were trading shortly after the opening bell Tuesday morning:

  • S&P 500 (^GSPC): -32.55 (-0.73%) to 4,410.56

  • Dow (^DJI): -131.45 (-0.38%) to 34,737.92

  • Nasdaq (^IXIC): -166.48 (-1.08%) to 14,808.95

  • Crude (CL=F): +$0.61 (+0.81%) to $76.06 a barrel

  • Gold (GC=F): -$17.00 (-0.97%) to $1,735.00 per ounce

  • 10-year Treasury (^TNX): +5.5 bps to yield 1.539%

9:01 a.m. ET: Home prices reach record high for fourth straight month in July: Case-Shiller

U.S. home prices increased further in July, setting a new all-time high for a fourth consecutive month as elevated demand and materials shortages pushed up housing prices further. 

The S&P CoreLogic Case-Shiller national home price index rose at a 19.70% rate in July over last year, accelerating from June’s 18.73% monthly increase. The 20-City Composite Index, which tracks home price changes in 20 major metropolitan areas across the country, rose 19.95%, accelerating from June’s 19.14% increase but coming in a hair below the 20.00% rise expected, according to Bloomberg data. 

Over last month, however, the 20-City Composite Index decelerated slightly. The index rose 1.55% in July compared to June, after rising at a 1.79% monthly pace during the prior month. Consensus economists were looking for a 1.70% monthly increase in July. 

7:38 a.m. ET Tuesday: Stock futures drop, Nasdaq underperforms

Here’s where markets were trading head of the opening bell: 

  • S&P 500 futures (ES=F): -40.75 points (-0.93%), to 4,392.25

  • Dow futures (YM=F): -164 points (-0.47%), to 34,579.00

  • Nasdaq futures (NQ=F): -255.25 points (-1.68%) to 14,939.50

  • Crude (CL=F): +$0.73 (+0.97%) to $76.18 a barrel

  • Gold (GC=F): -$20.00 (-1.14%) to $1,732.00 per ounce

  • 10-year Treasury (^TNX): +5 bps to yield 1.534%

6:07 p.m. ET Monday: Stock futures drift sideways

Here were the main moves in markets as of Monday evening:

  • S&P 500 futures (ES=F): -2.75 points (-0.06%), to 4,430.25

  • Dow futures (YM=F): -3 points (-0.01%), to 34,740.00

  • Nasdaq futures (NQ=F): -17 points (-0.11%) to 15,177.75

A trader works at the trading floor in the New York Stock Exchange in New York, the United States, Sept. 20, 2021. U.S. stocks tumbled on Monday as selling pressure intensified on Wall Street. The Dow Jones Industrial Average fell 614.41 points, or 1.78 percent, to close at 33,970.47, after shedding by more than 970 points at its session low. The S&P 500 dropped 75.26 points, or 1.70 percent, to 4,357.73. The Nasdaq Composite Index slid 330.06 points, or 2.19 percent, to 14,713.90. (Photo by Xinhua via Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter