(Bloomberg) — Energy and industrials shares led U.S. stocks lower as the pullback that originated in the technology sector widened while investors remained on edge over the threat of inflation.
The tech-heavy Nasdaq 100 fluctuated widely, climbing off the overnight lows hit in the futures market as some dip buyers emerged. The benchmark S&P 500 dropped for a second day after closing at a record high on Friday. Treasury yields edged higher and the dollar traded near the lowest levels of this year.
Debate rages over whether the expected jump in price pressures will be enduring enough to force the Federal Reserve into tightening policy sooner than current guidance suggests. A measure of U.S. inflation expectations reached the highest level since 2006. Fed Governor Lael Brainard said policy makers must show continued patience as distortions in the post-pandemic boom sort themselves out while the economy is still far from the central bank’s objectives.
“What’s interesting about tech and the selloff is that it comes in the face of stable yields, a Fed that is likely on hold for a while and some very strong earnings,” said Michael Arone, chief investment strategist for the U.S. SPDR exchange-traded fund business at State Street Global Advisors. “Markets seem to be anticipating some time of move in rates and inflation that could potentially be problematic for the tech and growth trade.”
Among the biggest pandemic winners, tech stocks whose valuations often depend on earnings prospects far into the future are now at the center of the inflation-fueled selloff. That was epitomized in Cathie Wood’s Ark Innovation ETF, which has tumbled about 20% so far this year after surging almost 150% in 2020.
Read more: Global Tech Rout Deepens as Sector Slides Further From Peaks
Even after the declines, the Nasdaq Composite trades at 26 times the 12-month projected profits, while the gauge of European technology shares enjoys a valuation of 29 times.
Wednesday’s U.S. inflation report along with a series of U.S. government bond auctions this week are seen as the next factors to deepen or arrest the slide. The latest reading is expected to show an accelerated pace of consumer-price increases, with the year-on-year comparison made starker by the pandemic shock in 2020.
Copper prices traded near a record, while iron also rallied. Oil dipped as traders monitored progress on reopening the largest U.S. oil-products pipeline, which was paralyzed by a cyberattack, and is expected to be mostly back online by the weekend.
See here the MLIV Question of the Day: How Far Can Reflation Trades Go?
Here are some key events to watch this week:
U.S. CPI report Wednesday is forecast to show prices continued to increase in AprilBank of England Governor Andrew Bailey speaks Wednesday
These are some of the main moves in markets:
Stocks
The S&P 500 fell 1.2%, more than any closing loss since March 18 as of 12:44 p.m. New York timeThe Nasdaq 100 fell 0.5% to the lowest since March 31The Dow Jones Industrial Average fell 1.6%, more than any closing loss since Feb. 25The MSCI World index fell 1.3%, more than any closing loss since March 4
Currencies
The Bloomberg Dollar Spot Index fell 0.1%, falling for the fifth straight day, the longest losing streak since April 19The euro rose 0.3% to $1.2164The British pound rose 0.3% to the highest in about three yearsThe Japanese yen rose 0.3% to 108.53 per dollar
Bonds
The yield on 10-year Treasuries advanced one basis point, climbing for the fourth straight day, the longest winning streak since March 19Germany’s 10-year yield advanced five basis points, more than any closing gain since March 3Britain’s 10-year yield advanced five basis points, more than any closing gain since March 18
Commodities
West Texas Intermediate crude rose 0.1% to $65 a barrelGold futures fell 0.1% to $1,836 an ounce, ending a four-day winning streak
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