[New York Stock Market] Tech Stocks Pressured by Rising US Treasury Yields... Nasdaq Down 0.45%

Major indices on the U.S. New York Stock Exchange closed lower on the 28th (local time) as concerns over the banking sector crisis eased somewhat while Treasury yields rose. Remarks from officials suggesting the possibility of stronger financial regulations also contributed to subdued trading in the afternoon session.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average fell 37.83 points (0.12%) from the previous close to finish at 32,394.25. The S&P 500, focused on large-cap stocks, dropped 6.26 points (0.16%) to 3,971.27, and the tech-heavy Nasdaq Composite declined 52.76 points (0.45%) to close at 11,716.08.

By sector, the S&P 500 saw declines in telecommunications, technology, real estate, and healthcare stocks, while energy, industrials, and materials sectors showed gains. Among individual stocks, the weakness in interest rate-sensitive tech shares was evident. Alphabet (Google) fell 1.4%, Meta dropped 1.06%, and leading semiconductor stocks such as Qualcomm and AMD recorded losses around 2%. Tesla slid more than 1.3% following news that U.S. transportation authorities had launched an investigation into a defect causing seat belts to loosen.

Additionally, China's Alibaba surged over 14% after announcing a restructuring plan to split into six business groups. Each of the six independent groups will operate under a CEO responsibility system and pursue independent financing and initial public offerings (IPOs). Bank stocks, which had been rising amid easing banking sector concerns, declined after officials hinted at the need for stronger financial regulations during a congressional hearing. First Republic Bank, identified as a potential 'second Silicon Valley Bank (SVB),' reversed course and closed down 2.32%. The SPDR S&P Regional Banking ETF ended slightly lower.

[Image source=Reuters Yonhap News]

Investors were cautious, closely watching Treasury yield movements and the Federal Reserve's (Fed) interest rate path. Afternoon trading volume was significantly below the 30-day average. Brian Levitt, Global Market Strategist at Invesco, commented, "With Treasury yields rising for two consecutive days, the market is being led by less sensitive sectors such as energy and industrials." Economic media outlet CNBC reported, "As the 2-year Treasury yield rises above 4%, investors are focusing on fears that higher rates could push the economy into a recession."

Treasury yields continued their upward trend in the New York bond market. The 2-year Treasury yield, sensitive to monetary policy, hovered around 4.08%, while the 10-year yield stood near 3.56%.

This week, several events that could impact market volatility remain. Following the Senate, the House Financial Services Committee will hold a hearing the next day on the banking sector crisis that spread after the recent SVB collapse. Michael Barr, Fed Vice Chair for Supervision, appeared before the Senate Banking Committee and cited management failures as a cause of the SVB collapse, stating that "strengthening capital and liquidity regulations will be considered."

Also scheduled this week are speeches by Fed officials including Governor Lisa Cook, Governor Christopher Waller, New York Fed President John Williams, Boston Fed President Susan Collins, and Richmond Fed President Thomas Barkin. Economic data releases include the Fed-preferred inflation gauge, the February Personal Consumption Expenditures (PCE) price index, and the finalized U.S. Q4 GDP growth rate. The PCE price index is estimated to have risen 4.7% year-over-year and 0.4% month-over-month.

The current market sentiment is divided between expectations of a rate pause and a baby step (a 0.25 percentage point rate hike). According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of the afternoon, federal funds futures price in over a 56% chance of the Fed holding rates steady at the May FOMC meeting. The probability of a baby step hike stands at 43.2%. Futures markets are also pricing in the possibility of the Fed cutting rates starting in July or September.

Regarding this, JP Morgan strategist Hugh Jumper said, "The market's pause expectation is correct," but added that a rate cut within the year is unlikely without a significant economic shock. BlackRock Investment Institute (BII) strategists, including Chief Investment Strategist Wei Li, dismissed the possibility of rate cuts this year in their weekly client note. BlackRock strategists stated, "Central banks are causing recessions to fight inflation, which lowers the likelihood of rate cuts," adding, "While the fight has weakened, rate cuts are still not expected."

U.S. home prices continued to decline due to the burden of rising mortgage rates. The January S&P CoreLogic Case-Shiller Home Price Index, released that day, fell 0.2% month-over-month, marking the seventh consecutive month of decline. On a year-over-year basis, prices rose 3.8%, slowing from the previous month's 5.6% increase.

The U.S. dollar weakened. The Dollar Index, which measures the dollar's value against six major currencies, traded over 0.4% lower at around 102.4.

Crude oil prices continued their upward trend, hitting a two-week high again. On the New York Mercantile Exchange, May delivery West Texas Intermediate (WTI) crude oil closed at $73.20 per barrel, up 39 cents (0.54%) from the previous close.