The S&P 500 and Nasdaq closed lower on Monday as climbing Treasury yields and prospects of rising inflation triggered valuation concerns, hitting shares of high-flying growth companies.
The Dow index ended slightly higher, lifted by a 4% surge in Walt Disney Co shares.
U.S. benchmark 10-year Treasury yields were up at 1.363%. Since the beginning of February, 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years.
Still, some analysts noted that the stocks pullback was expected after a torrid rally this year and in 2020.
“This is a small pulback primarily because stocks got a little overheated and there are a few worries out there that people are making mountains out of molehills,” said Brian Reynolds, chief market strategist, at Reynolds Strategy.
He cited worries about the rise in Treasury yields, but noted that junk bond yields hit all-time lows last week, suggesting there has been a shift from the safety of Treasuries to the riskiness of corporates among investors.
“That’s bullish for stocks,” he added.
Federal Reserve Chair Jerome Powell is scheduled to speak before the Senate Banking Committee on Tuesday, and investors are expected to look for any potential changes to the central bank’s dovish outlook.
“What investors are grappling with … is what does this (higher Treasury yields) mean from an inflation perspective. Because of that, there’s a little bit of tantrum in the market right now,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina.
Shares of Apple Inc, Microsoft Corp, Alphabet Inc, Tesla Inc and Amazon.com Inc resumed their slide from the previous week, falling between 0.9% and 5%.
Largely upbeat fourth-quarter earnings had powered Wall Street’s main indexes to record highs early last week, but the rally lost steam, in part due to fears of a potential snag in U.S. vaccination efforts and inflation concerns emanating from stimulus measures.
The Dow Jones Industrial Average ended 27.37 points higher, or 0.09%, to 31,521.69, the S&P 500 lost 30.21 points, or 0.77%, to 3,876.5 and the Nasdaq Composite dropped 341.42 points, or 2.46%, to 13,533.05.
The last time the Dow ended higher, while the Nasdaq fell more than 2.4% was May 29, 2001.
The S&P 500 declined for five straight sessions, its longest such streak in a year.
Value stocks have outperformed growth shares in February, with investors betting on a rebound in industrial activity and a pickup in consumer demand as countries roll out vaccines to tame the pandemic.
The S&P 500 industrials and financial sector rose 0.3% and nearly 1%, respectively, while energy stocks surged 3.5% on higher oil prices.
Discovery Inc jumped 8.9% after the media company said it was expecting 12 million global paid streaming subscribers by the end of February, as coronavirus restrictions kept people at home.
Kohl’s Corp gained 6.2% after a group of activist investors nominated nine directors to the department store chain’s board.
Principal Financial Group Inc added 8.1% after a media report that activist investor Elliott Management Corp had taken a stake in the life insurance company and planned to push for changes.
Declining issues outnumbered advancing ones on the NYSE by a 1.13-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored decliners.
The S&P 500 posted 71 new 52-week highs and no new lows; the Nasdaq Composite recorded 268 new highs and 15 new lows.
Volume on U.S. exchanges was 14.38 billion shares, compared with the 16.05 billion average for the full session over the last 20 trading days.