U.S. Stocks See Further Downside As Yellen Hints At Higher Interest Rates

After coming under pressure early in the session, stocks have seen further downside over the course of the trading day on Tuesday. The major averages have all slid firmly into negative territory, with the tech-heavy Nasdaq leading the way lower.

In recent trading, the major averages have bounced off their lows of the session. While the Nasdaq is down 361.34 points or 1.6 percent at 13,533.78, the S&P 500 is down 52.20 points or 1.3 percent at 4,140.46 and the Dow is down 186.32 points or 0.6 percent at 33,926.91.

The weakness on Wall Street largely reflects a continued pullback by technology stocks, as reflected by the steep drop by the Nasdaq.

The Nasdaq reached a record intraday high during trading last Thursday but has pulled back sharply since then, falling to its lowest intraday level in a month.

Traders may be cashing in on tech stocks that benefited from the coronavirus-induced lockdowns as more states continue to lift restrictions.

Additional selling pressure was generated in reaction to comments from Treasury Secretary Janet Yellen, who suggested interest rates may have to rise modestly to prevent the economy from overheating amid the recent spike in government spending.

“Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates,” Yellen said at The Atlantic’s Future Economy Summit.

“But these are investments our economy needs to be competitive and to be productive,” she added. “I think our economy will grow faster because of them.”

The comments from Yellen come even though the Federal Reserve has repeatedly indicated interest rates are likely to remain at near-zero levels for the foreseeable future.

Concerns about the near-term outlook for the markets may also be weighing on Wall Street, as some analysts have warned the markets have come too far too fast in light of the ongoing pandemic.

Most major companies have reported better than expected quarterly results this earnings season, but buying interest has been somewhat subdued amid worries about valuations.

In U.S. economic news, a report released by the Commerce Department showed the U.S. trade deficit hit a new record high in the month of March.

The Commerce Department said the trade deficit widened to $74.4 billion in March from a revised $70.5 billion in February.

The trade deficit was nearly in line with estimates, as economists had expected the deficit to widen to $74.5 billion from the $71.1 billion originally reported for the previous month.

A separate report from the Commerce Department showed new orders for U.S. manufactured goods rebounded slightly less than expected in the month of March.

The Commerce Department said factory orders jumped by 1.1 percent in March after falling by a revised 0.5 percent in February.

Economists had expected factory orders to surge up by 1.3 percent compared to the 0.8 percent drop originally reported for the previous month.

Sector News

Airline stocks continue to see substantial weakness in mid-day trading, resulting in a 3.4 percent nosedive by the NYSE Arca Airline Index.

Significant weakness also remains visible among semiconductor stocks, as reflected by the 3.2 percent slump by the Philadelphia Semiconductor Index. The index has fallen to its lowest intraday level in over a month.

Networking, computer hardware and software stocks are also seeing considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

Most of the other major sectors have also moved to the downside on the day, with notable weakness visible among biotechnology, gold and retail stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Tuesday, with the Japanese and Chinese markets still closed for holidays. Hong Kong’s Hang Seng Index advanced by 0.7 percent, while Australia’s S&P/ASX 200 Index climbed by 0.6 percent.

Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index plunged by 2.5 percent, the French CAC 40 Index slid by 0.9 percent and the U.K.’s FTSE 100 Index fell by 0.7 percent.

In the bond market, treasuries have pulled back well off their best levels but continue to see modest strength. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 1.5 basis points at 1.592 percent.

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