Traders are seen working on the New York Stock Exchange's floor in New York, U.S.A, March 9, 2020. Bryan R Smith/Reuters
On Tuesday, the Nasdaq 100 fell more than 2% due to an increase in Treasury yields.
On Tuesday, the 10-Year US Treasury yield reached a record high of 1.56%. This is its highest level since June.
Stocks with mega-cap tech companies like Alphabet, Amazon, Facebook and Amazon fell by more than 2%.
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Inflation is on the rise and interest rates are rising. This is causing a shift from high-growth tech stocks to more cyclical ones in the financials, energy and financials sectors.
The Nasdaq 100 fell more than 2 percent on Tuesday. This was in addition to its 2-day loss of more than 33%. On Tuesday, the 10-year Treasury yield soared to an all-time high of 1.56%.
Stocks of mega-cap tech stocks Alphabet, Facebook and Microsoft all fell more than 2 percent in Tuesday trades. Apple, however, was only slightly lower at 1%.
Fairlead Strategies' technical analyst Katie Stockton believes that the rise in interest rates will continue if the 10-year Treasury yield crosses resistance at 1.53%. With an upside target of the year-to date high of 1.77%, this could be a sign of continued inflation.
This should continue to put pressure on tech stocks and help boost stocks within more cyclical industries like energy and financials.
"High-growth stocks tend not to outperform when Treasury yields rise," Stockton said in a Friday note. This is typically felt most by the technology sector, which is relative overbought. Stockton stated in a Friday note that he would look at reducing our exposure to growth ETFs such as ARKK, and would respect any breakdowns.
Fed Chairman Jerome Powell warned that inflation could be higher than anticipated, pointing out that global supply chain disruptions as well as tight labor markets may have contributed to the increase in interest rates. The Fed would consider increasing inflation a driving factor in its decision to reduce asset purchases and increase interest rates to combat rising costs.
Interest rates could be higher due to uncertainty about the debt ceiling hike. Janet Yellen, Treasury Secretary to Congress, testified Tuesday that if the US debt limit is not raised before the Treasury runs dry of money (which is expected to happen around October 16), interest rates could rise as investors lose faith in America’s ability to meet its obligations.
Yellen stated to Congress that the US would inflict a "financial crises" if it didn't raise its debt ceiling by the deadline.