Tech Leads Stock Losses Amid Valuation Warnings: Markets Wrap

(Bloomberg) -- U.S. stocks dropped after the biggest rally in nine months spurred speculation about excessive investor optimism. Treasuries stabilized, following a recent spike in yields. The dollar retreated.

Technology shares led losses in the S&P 500 as Apple Inc. and Tesla Inc. dragged down the Nasdaq 100 -- with the electric-car maker tumbling more than 4%. Target Corp. sank on an underwhelming profitability outlook. Rocket Cos., a Detroit-based holding company, soared after a news report that the stock could become a Reddit target for its high short-interest.

Bullishness among Wall Street strategists is near levels that have presaged potential trouble for stocks, according to a Bank of America Corp. gauge. The measure assesses the average recommended allocation to equities and is close to triggering a sell signal. A valuation methodology, sometimes called Fed model that compares corporate profits to bond rates, recently showed stocks were losing their edge. Earlier Tuesday, China’s top banking regulator said he was “very worried” about risks from bubbles in global financial markets.

For Bill Northey, senior investment director at U.S. Bank Wealth Management, rising rates are seen as an important element of what’s “giving investors pause at this point in time.” He also noted that they’re relevant when it comes to figuring out the appropriate level of valuations against the stream of corporate earnings.

“Did we come too far, too fast in pricing in a strong economy and corporate earnings recovery?” he said.

An almost year-long surge in U.S. stocks is due for a pause about now, according to Ryan Detrick, chief market strategist at LPL Financial LLC. “History would say be open to some type of weakness or consolidation,” he said in a blog post Friday. Detrick cited the S&P 500’s performance after bull markets that began in 1982 and 2009, the two fastest starters before the current advance. Both rallies faltered near the one-year mark, and the S&P 500 was little changed to lower six months later.

There are some key events to watch this week:

• U.S. Federal Reserve Beige Book is due Wednesday.
• OPEC+ meeting on output Thursday.
• U.S. factory orders, initial jobless claims and durable goods orders are due Thursday.
• The February U.S. employment report on Friday will provide an update on the speed and direction of the nation’s labor market recovery.

These are some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8% at 4 p.m. New York time.
• The Stoxx Europe 600 Index increased 0.2%.
• The MSCI Asia Pacific Index declined 0.4%.
• The MSCI Emerging Market Index decreased 0.1%.

Currencies

• The Bloomberg Dollar Spot Index decreased 0.3%.
• The euro gained 0.3% to $1.2089.
• The Japanese yen was unchanged at 106.76 per dollar.

Bonds

• The yield on 10-year Treasuries fell one basis point to 1.41%.
• Germany’s 10-year yield dipped two basis points to -0.35%.
• Britain’s 10-year yield decreased seven basis points to 0.687%.

Commodities

• West Texas Intermediate crude fell 1.6% to $59.65 a barrel.
• Gold rose 0.5% to $1,733.71 an ounce.
• Silver added 0.5% to $26.71 per ounce.

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