After some early momentum, most stock indices have dipped into the red Tuesday. Why are stocks down today?
Both the S&P 500 and Nasdaq Composite have taken surprise downward swings despite opening in the green. They are eyeing 0.08% and 0.35% losses, respectively.
It seems investors are still responding to recent movements in the bond market. Indeed, the 10-year yield jumped 30 basis points over the past two trading sessions, seemingly reacting to recent hawkish commentary from the Federal Reserve.
At last week’s policy meeting, Fed Chair Jerome Powell stated that members of the central bank want to wait for more economic data before cutting rates. This crushed the dovish hopes of some investors, who were still holding out for a March rate cut, pushing bond yields up in the process.
Bond yields and stocks typically have an inverse relationship. That is, when yields rise, there’s a “flight-to-safety” effect where investors put dislocate investments from equity markets into safer and comparably better-paying Treasuries.
Why Are Stocks Down Today?
While it’s still early, should the bears win the day, it would likely put stocks on track for a losing week to enter the new month. Indeed, stocks fell Monday, with the S&P and Nasdaq shedding about 0.32% and 0.2%, respectively.
That said, both indices are still up on the year, 4.22% and 5.44%, respectively. Reasonably so, as strong tech earnings and uplifting economic data have investors in a generally optimistic mood.
Most of this year’s gains have come overwhelmingly from members of the “Magnificent Seven,” particularly Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA), which make up roughly 75% of the S&P’s returns since Jan. 1.
Earnings season is still in full swing, with the likes of Chipotle (NYSE:CMG) and Ford (NYSE:F) set to report Q4 financial results after the bell.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
