Ten-Year Rate Spike Sinks Tesla and ARKK, Deepening Tech Carnage
(Bloomberg) -- The rout in popular technology shares accelerated after the 10-year Treasury rate spiked as much as 23 points, fueling worry that the Federal Reserve will be forced to raise interest rates.
Tesla Inc. dropped 8% to erase its 2021 gains. The Ark Innovation ETF pushed its four-day rout past 15%. Peloton Interactive Inc. cratered 18% in the same time. Zoom Video Communications Inc. is on its longest-ever losing streak.
After a weak 7-year note auction sent the 10-year rate past 1.6% for the first time in a year, the carnage spread rapidly among the stay-at-home darlings that drove 2020’s historic stock rebound. For the likes of Tesla, Zoom and other pandemic winners that notched triple-digit gains last year, anxiety is mounting that the group won’t be able to justify elevated valuations if borrowing costs remain elevated.
“It all has to do with the rise in long-term rates,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Since higher rates are negative for techs, it’s having a bigger impact on them. Also, higher rates have a bigger impact on the names that have seen the biggest moves.”
The rate spike also raises the specter that the economy is cooking so hot that the Fed may be forced to raise rates to cool it. The equity selloff was widespread. The Nasdaq 100 Index sank 3.6%, the most since October. Small caps in the Russell 2000 also plunged more than 3%. The S&P 500 Index fell 2.5%.
Vaccine rollouts and a likely federal spending bill prompted economists up and down Wall Street to ratchet up their 2021 growth forecasts, fueling inflation worries. While strong economic growth is generally positive for stocks, if rates rise too quickly, it can spook investors.
“The trajectory of the increase is giving some equity investors pause about what if yields keep going up at this rate,” David Donabedian, chief investment officer at CIBC Private Wealth, said in a phone interview.
As the 10-year yield began to spike, equity traders rushed to the exits. A net of 1,739 stocks were on a down tick at one point, the second-biggest bout of coordinated selling of the year.
“It’s pretty ugly,” said Mike Bailey, director of research at FBB Capital Partners. “We are seeing another correction fitting with a pattern we saw in September and October. My sense is we are in the latter innings of this third beat-down for big tech.”
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