• February 9, 2023

Nasdaq books biggest daily gain in 5 months as falling bond yields fuel tech bounce

The US stock market benchmarks rebounded Tuesday as falling bond yields helped the tech-heavy Nasdaq Composite rise sharply a day after tumbling into correction territory.

What do major indices do?
  • The Dow Jones industrial average
    DJIA, + 0.10%
    ended the session well, gaining 30.30 points, or 0.1%, to end at 31,832.74. The blue chip value was 0.4% compared to the record close of 31,961.86 last month.

  • The S&P 500
    SPX, + 1.42%
    finished 54.09 points, or 1.4%, at 3,875.44.

  • The Nasdaq Composite
    COMP, + 3.69%
    rose 464.66 points, or 3.7%, to 13,073.82, the largest daily percentage gain since November 4th.

On Monday the Dow
DJIA, + 0.10%
ended up gaining 306.14 points, or 1%, at 31,802.44 after rising more than 650 points to hit an intraday record at the beginning of the session. The S&P 500 ended up losing 0.5%. And the Nasdaq fell 2.4% to end at 12,609.16. It was 10.5% below its record close on February 12th. The Nasdaq slipped meets the definition of a correctionThis is a 10% decrease from the most recent high.

What is driving the market?

A recent surge in yields has seen a move away from growth-oriented stocks, including many soaring technology-related stocks that boomed during the pandemic-triggered lockdowns.

Investors have used the proceeds to stack stocks of more cyclical and value-driven stocks and sectors that are believed to benefit most from a wider reopening of the economy.

But that dynamic was deemed put on hold on Tuesday the yield on the 10 year Treasury bill
TMUBMUSD10Y, 1.531%
fell 5 basis points to 1.545% after trading around 1.60% on Monday. Yields and bond prices are moving in opposite directions.

Before Tuesday, rising yields had triggered an exodus of stocks that had risen sharply during the rebound from pandemic lows set almost a year ago.

“The cyclical rotation has been strong for months and today it is overdue to buy the decline for technology stocks. The move in technology stocks coincides with the rally in government bonds, so many traders will be skeptical that this rally will continue, ”said Edward Moya, senior analyst at Oanda.

Meanwhile, the House is expected to come this week with final approval of a package of $ 1.9 trillion in COVID relief spending, bringing President Joe Biden an early political victory and expectation of an increase in economic growth in the Awakening through 2021 and hastening a reopening fueled by the introduction of vaccines and past stimulus doses.

The same momentum has fueled the rise in bond yields as investors expect at least a short-term spike in inflation.

“Investors are increasingly concerned that a rapid acceleration in activity could trigger inflation. Yes, inflation is likely to rise in the short term due to base effects compared to last year’s global lockdowns, supply chain bottlenecks and higher energy prices, ”said Esty Dwek, head of global market strategy at Natixis Investment Managers.

However, Dwek said the labor market remained severely lagging and unemployment rates were far from falling back to pre-pandemic levels.

Investors will take a look at inflation data later this week, but the economic calendar was light on Tuesday. The National Federation of Independent Business announced that it is closely following the Optimism Index increased to 95.8 last month from 95 in January.

Which companies are in focus?
What are other markets doing?

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