The blue-chip Dow powered to its fifth consecutive record high on Friday as investors bought shares that should benefit from a strong reopening of the U.S. economy, an outlook signaled by rising yields in the bond market.
The tech-heavy Nasdaq tumbled after rebounding more than 6% over the past three sessions as the rising bond yields revived inflation worries and dulled the appeal of high-growth technology shares. The S&P 500 and TSX closed just slightly in positive territory, but it was enough to set all-time end-of-day record highs for both.
The recent rise in U.S. Treasury yields has raised fears of a sudden tapering of monetary stimulus and put downward pressure on Wall Street in recent weeks.
The yield on the benchmark 10-year note hit 1.642% on Friday, the highest level since February of last year. Canada’s 10-year government yield also hit the highest in more than a year, reaching 1.596%. So did Canada’s closely watched five-year yield, which hit 1.044% - a rise of more than one-tenth of a percentage point for the day and signaling further hikes are likely ahead in fixed mortgage rates.
In addition to the influence of rising U.S. Treasury yields, the Canadian bond market was reacting to a much-stronger-than-expected Canadian jobs report, which saw the net creation of 259,200 positions in February. The Canadian dollar rose to above 80 cents U.S. following the data.
The S&P/TSX Composite Index closed up 6.75 points, or 0.04%, at 18,851.32. Unlike in the U.S., tech stocks were largely unscathed, with Shopify nearly unchanged and BlackBerry rallying 10.78%. The real estate and financials sectors led gains, rising 0.30% and 0.28%, respectively.
For the week, the TSX rose 2.5%.
The S&P 500 and Nasdaq posted their biggest weekly percentage gains since early February after President Joe Biden signed into law on Thursday one of the largest U.S. fiscal stimulus bills and data reinforced convictions the economy was headed to a high-growth recovery.
Boeing Co rose 6.82% to lead the Dow and S&P 500 higher. The rising Dow and tumbling Nasdaq reflect an ongoing sell-off in tech as investors buy cyclical and underpriced value stocks that are expected to do well as the economy recovers.
For tech stocks to continue to flourish you need low rates, and in effect slower growth, said Thomas Hayes, chairman and managing member of hedge fund Great Hill Capital LLC.
But with the stimulus package the economy is likely to expand 7% to 9% this year and pressure interest rates, he said.
“That’s why you’re seeing rates rise today because the reopening is happening faster and stronger than anticipated. And that’s when value and cyclicals and economically sensitive stocks outperform,” Hayes said.
The speedy distribution of vaccines and more fiscal aid have spurred concerns of rising inflation despite assurances from the Federal Reserve to maintain an accommodative policy. All eyes will be on the central bank’s policy meeting next week for further cues on inflation.
U.S. consumer sentiment improved in early March to its strongest in a year, a survey by the University of Michigan showed on Friday.
The Dow Jones Industrial Average rose 293.05 points, or 0.9%, to close at 32,778.64 and the S&P 500 gained 4 points, or 0.10%, to 3,943.34. The Nasdaq Composite dropped 78.81 points, or 0.59%, to end at 13,319.87.
For the week, the S&P rose 2.6%, the Dow added 4.1% and the Nasdaq gained 3.1%. For the Dow it was its biggest weekly gain since November.
The Nasdaq has been particularly hit by the sell-off in recent weeks and confirmed a correction at the start of the week as investors swapped richly valued technology stocks with those of energy, mining and industrial companies that are poised to benefit more from an economic rebound.
On Wall Street, value stocks added about 0.80%, while growth stocks slumped 0.62% in a continuation of a rotation that began late last year.
The high-flying but yield-sensitive group of stocks including of Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc, Google-parent Alphabet Inc, Tesla Inc and Microsoft Corp, which fueled the past’s year rally, fell.
Tech, communication services and consumer discretionary indexes, which house these mega-cap stocks, slipped the most among major S&P sectors.
The bank index jumped 1.83%, while financials and industrials clinched new record levels.
Advancing issues outnumbered declining ones on the NYSE by a 1.24-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored advancers.
The S&P 500 posted 83 new 52-week highs and no new lows; the Nasdaq Composite recorded 396 new highs and 12 new lows.
Read more: Stocks that saw action Friday - and why
With files from Reuters
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