Why are stocks down this week? And where is all of the market volatility coming from today?
So many things are looking up. The U.S. Food and Drug Administration approved a third Covid-19 vaccine from Johnson & Johnson (NYSE:JNJ), promising a much quicker rollout. Lawmakers in the Senate are debating the $1.9 trillion stimulus proposal now. And this morning, investors learned that the economy added 379,000 jobs in February. That beat estimates and marks the first month of meaningful gains since December. It seems that all signs are pointing to economic recovery and a day when the pandemic is in the past.
But why then are stocks down this week? It appears that there are three reasons right now.
The first is a bit of an equation. Start with fear. Investors are nervously watching as lawmakers discuss the $1.9 trillion stimulus proposal. On one hand, it would boost unemployment benefits and provide $1,400 direct payments, two things that could buoy consumer spending. On the other hand, some economists think it is too large and would worsen inflation. Those inflationary fears correspond with rising yields on the 10-year Treasury note. Those rising yields correspond with a plunge in tech stocks. We have been watching that process play out in recent trading days.
The second part of the equation is that tech stocks face a bit of a double whammy. Not only are rising yields weighing down risk-on assets, but reopening trades are also making their mark. So many tech winners came about because of the pandemic. Without a need to work and order everything from home, investors are trying to figure out the new normal. Will Zoom (NASDAQ:ZM), Etsy (NASDAQ:ETSY) and Shopify (NYSE:SHOP) all win in a world without Covid-19?
Why Are Stocks Down This Week?
However, it seems that the third reason is really at play on Friday morning.
Consider the rising inflation, rising 10-year Treasury yields and plunging tech stocks equation. Yesterday, investors turned to Fed Chair Jerome Powell in hopes that he would quell their concerns and turn that equation around. But his response was underwhelming. To many investors, this seemed to guarantee the demise of risk-on sentiment and therefore of growth-focused stocks. And it also seemed to guarantee that yields on the 10-year note would only continue to gain.
We are seeing that like a self-fulfilling prophecy today. Despite a promising jobs report, stocks are struggling. The culprit? A lack of confidence from Powell and a 10-year yield hitting a daily high above 1.6%.
So why are stocks down? And will they stay there? We are at the one-year point of a pandemic and investors are trying to sort out what comes next. For InvestorPlace analyst Luke Lango, this stock market pain will pass. When it does, growth stocks will shine. Here are three mega-caps to buy on the dip.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.
