Continued Increase In Bond Yields Leads To Sell-Off On Wall Street

Stocks moved sharply lower over the course of the trading session on Thursday, more than offsetting the rally seen on Wednesday. The major averages came under pressure in early trading and saw further downside as the day progressed.

The major averages all saw substantial weakness, with the tech-heavy Nasdaq posting a particularly steep loss. The Nasdaq plunged 478.54 points or 3.5 percent to 13,119.43, its lowest closing level in nearly a month.

The Dow also tumbled 559.85 points or 1.8 percent to 31,402.01 and the S&P 500 plummeted 96.09 points or 2.5 percent to 3,829.34.

The sell-off on Wall Street came amid a continued increase in treasury yields, which led to renewed concerns about interest rates despite Federal Reserve Chair Jerome Powell’s assurances of ultra-easy monetary policy for the foreseeable future.

The yields on ten-year notes and thirty-year bonds once again rose to their highest levels in a year, with the ten-year yield briefly spiking above 1.6 percent in intraday trading.

The increase in yields came following the release of a batch of largely upbeat U.S. economic data, including a report from the Labor Department showing a steep drop in first-time claims for U.S. unemployment benefits in the week ended February 20th.

The Labor Department said initial jobless claims tumbled to 730,000, a decrease of 111,000 from the previous week’s revised level of 841,000.

Economists had expected jobless claims to drop to 838,000 from the 861,000 originally reported for the previous week.

With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 716,000 in the week ended November 28th.

The Commerce Department also released a report showing new orders for U.S. manufactured durable goods spiked by much more than expected in the month of January.

The report said durable goods orders soared by 3.4 percent in January after jumping by an upwardly revised 1.2 percent in December.

Economists had expected durable goods orders to surge up by 1.1 percent compared to the 0.5 percent increase that had been reported for the previous month.

Excluding a sharp increase in orders for transportation equipment, durable goods orders still jumped by 1.4 percent in January after spiking by an upwardly revised 1.7 percent in December.

Ex-transportation orders had been expected to climb by 0.7 percent, matching the increase that had been reported for the previous month.

A separate report released by the Commerce Department showed U.S. gross domestic product jumped by slightly more than originally estimated in the fourth quarter of 2020.

The Commerce Department said GDP surged up by 4.1 percent in the fourth quarter compared to the previously reported 4.0 percent spike. The upward revision matched economist estimates.

Sector News

Semiconductor stocks turned in some of the market’s worst performances on the day, resulting in a 5.8 percent nosedive by the Philadelphia Semiconductor Index.

Substantial weakness was also visible among housing stocks, as reflected by the 4.8 percent plunge by the Philadelphia Housing Sector Index.

The sell-off by housing stocks came after the National Association of Realtors released a report showing a steep drop in U.S. pending home sales in the month of January, with inventory constraints continuing to hold back prospective buyers.

Airline stocks also pulled back sharply after soaring in recent sessions, with the NYSE Arca Airline Index plummeting by 4.3 percent after ending Wednesday’s trading at its highest closing level in a year.

Computer hardware, gold, steel and software stocks also saw considerable weakness on the day, moving notably lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan’s Nikkei 225 Index shot up by 1.7 percent, while South Korea’s Kospi spiked by 3.5 percent.

Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index slid by 0.7 percent, the French CAC 40 Index dipped by 0.2 percent and the U.K.’s FTSE 100 Index edged down by 0.1 percent.

In the bond market, treasuries moved sharply lower on the day, extending the steep drop seen in recent sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 12.9 basis points to 1.518 percent.

Looking Ahead

Another batch of economic data may impact trading on Friday, with traders likely to keep an eye on reports on personal income and spending, consumer sentiment, and Chicago-area business activity.