Looking at my portfolio today, I’m seeing solid red, as are most investors. Indeed, many investors may be wondering: Why are stocks down today?
It appears a confluence of factors are at play today. Broadly, there’s risk-off sentiment taking hold as investors factor in how the economic recovery could look. Right now, the data are broadly positive from an economic perspective. However, the stimulus measures President Joe Biden is proposing are pouring cold water on both bonds and equities.
On days like today, taking a walk is a great idea. Doing anything but checking your portfolio can do wonders for investors’ collective mental health. However, seeing that much red is hard to ignore, and investors may certainly want to dive into what’s going on today.
So, let’s do that.
Why Are Stocks Down Today?
It appears stocks today are getting a heavy dose of reality in terms of what rising bond yields mean for equities.
Today, the yield on the 10-year U.S. Treasury note rose to 14-month highs. This comes amid growing inflation expectations coming from accelerating vaccine rollouts and expectations of massive stimulus on the horizon.
Indeed, Biden’s proposed $3 trillion infrastructure bill has stoked expectations across a range of sectors. However, financing this bill via the bond market has investors betting that bond yields will continue to rise. Absent any sort of Federal Reserve action, the market is doing what it does best, and is pricing in forward-looking expectations. The impressive sell0ff in bonds appears to have a ton of momentum right now, and investors are playing the momentum game here.
Indeed, growth stocks with higher sensitivity to bond yields are taking a beating today. With FAANG stocks heavily weighted in most indices, investors selling index-tracking ETFs and other products are bringing the market down alongside these names.
It appears that equities traders are looking closer than ever at bond markets today. The stock market is severely overvalued according to a number of metrics, and investors are looking for a reason to sell.
That said, with most stocks down today, value investors may be on the prowl for deals. When the baby gets thrown out with the bathwater is the time to buy, so I wouldn’t be surprised to see the growth-to-value rotation pick up steam in the coming days.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.