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Tech Shares Fall as Bond Yields Rise


The S&P 500 fell Thursday as shares of technology companies and other high-growth stocks succumbed to another selloff in the government bond market.

Investors appeared to rethink the implications of improving growth projections, pulling the stock market into the red a day after the S&P 500 closed at a fresh record and the Dow Jones Industrial Averaged finished above 33,000 for the first time.

They initially cheered comments from Federal Reserve Chairman

Jerome Powell

who reiterated the central bank’s commitment to supporting financial markets until the economy fully recovers.

But the Fed also increased its median projections for growth and inflation based on the latest round of stimulus doled out by Congress, leading investors to re-evaluate the broader implications that level of expansion will have on pockets of the market, analysts and money managers said. That sparked another round of selling of government bonds, pushing yields to their highest level in 14 months.

“This morning, the markets woke up and decided if the Fed is going to keep policy so loose, they want higher risk premium,” said Michael Matthews, a fixed-income fund manager at Invesco.

Stock futures had started heading lower overnight after the 10-year Treasury yield, a key benchmark for lending costs, breached 1.7% for the first time since January 2020.

The S&P 500 was recently down 0.3%, while the tech-heavy Nasdaq Composite slid 1.4%. The Dow Jones Industrial Average held up better, rising about 150 points to stay above 33,000.

Apple,

Amazon.com

and Google parent Alphabet all fell at least 1.5%. Electric car maker Tesla fell further, shedding more than 4%.

The higher yields mean borrowing costs for businesses and individuals will go up, so investors have been selling pricey tech stocks that look less valuable in a rising rate environment to load up on shares of companies poised to benefit from an economic rebound.

“It is all about inflation expectations: The fact that we are getting inflation expectations beyond the Fed’s target is spooking bond markets,” added Edward Park, chief investment officer at Brooks Macdonald.

Investors also contended with mixed economic data, suggesting that the economic recovery remains uneven.

The number of Americans applying for first-time unemployment benefits rose to 770,000 in the week ended March 13, from 725,000 in the week prior. While filings for jobless claims, a proxy for layoffs, has fallen from its peak last year, they remain at historically high levels.

Meanwhile, a manufacturing index from the Philadelphia Federal Reserve hit its highest level in more than three decades, suggesting activity continues to expand.

“The thing to watch is the employment numbers, and central banks are all watching that,” said Mr. Matthews. “The Fed and all central banks have decided it is better to run the economy hot, to aid the recovery, to get as low unemployment as they possibly can.”

On Thursday, investors looked to sectors like banks, airlines and energy companies, which could benefit more when social and business activity picks up. Shares of financial stocks in the S&P 500 rose 2.2%, as investors priced in the likelihood that banks could earn more on the loans they issue. Industrial companies also advanced, adding 1.1% in recent trading.

Tech stocks, meanwhile, slumped 1.5%, while the communication and consumer discretionary sectors fell around 1% each. Energy stocks, consumer staples, utilities and real-estate companies also fell.

Looking ahead, bond investors are betting that the Fed will raise interest rates within the next two years, despite data Wednesday that showed most policy makers still expect to maintain ultralow interest rates through 2023. Seven of 18 Fed officials anticipated lifting rates in 2022 or 2023, up from five in December.

Overseas, the pan-continental Stoxx Europe 600 ticked up 0.2%.

In Asia, most major benchmarks closed higher. China’s Shanghai Composite Index added 0.5%, while Hong Kong’s Hang Seng rallied 1.3%. Australia’s S&P/ASX 200 declined 0.7%.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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