By
Steve Muchoki
April 16th, 2024
As tech shares decline due to higher interest rates, bank stocks are rather benefiting from the rise.
The Nasdaq Composite dipped due to a decline in tech shares caused by rising bond yields. On the 18th of March, the US stock market fell as equity valuations raised concerns among investors, prompting them to sell growth-focused high flyers. Rising rates can have significant effects on growth stocks as the increased rates reduced their future value.
Nasdaq Composite Sees Bad Trading Day as Tech Shares Fall
On the day, the Nasdaq Composite saw its worst trading day ever since the 25th of February. The Nasdaq Composite decline was fueled by the losses recorded by major tech companies despite yields increase. The Nasdaq Composite Index is currently closed at a 3.02% loss to $13,116.17.
Tech giants Apple Inc (NASDAQ: AAPL), Amazon.com Inc (NASDAQ: AMZN), and Netflix Inc (NASDAQ: NFLX) lost over 3%. In addition, electric vehicle maker Tesla Inc (NASDAQ: TSLA) shed about 7%.
At press time, however, Apple is up 0.02% to $120.55 in after-hours trading. Amazon is also at after-hours trading of $3,037.00, a 0.30% gain over its previous close of $3,027.99. At press time, Netflix is up 0.05% to $505.03 at after-hours trading.
Also, the S&P 500 fell from a record closing high reached in its previous session, losing 1.5% to 3,915.46. Despite that the Dow Jones Industrial Average hit a new intraday record earlier on the 18th as bank stocks surged, the stock market index declined 0.5% to 32,862.30.
CNBC noted in a report that the 10-year Treasury advanced by 11 basis points more than 1.75%, its highest level since last year January. Additionally, the 20-year rate increased 6 basis points briefly, crossing the 2.5% level for the first time since August 2019. The rise in bond yields came after the Federal Reserve said it would allow an overshoot in inflation.
Craig Johnson, the technical market strategist at Independent investment banking company Piper Sandler commented on the increasing rates. He said:
“Risk of rates rising too fast remains a key concern. Buying pressure has not been equal over the last several weeks as growth stocks lag behind due to headwinds from higher interest rates.”
Banks Benefit from Soaring Bin Yields
As tech shares decline due to higher interest rates, bank stocks are rather benefiting from the rise. Bank stocks are performing well as the rising bond yields seem to improve their profit margins. US Bancorp (NYSE: USB) surged 3.3%, while financial services company Wells Fargo (NYSE: WFC) grew 2.4%. Additionally, JPMorgan Chase & Co. (NYSE: JPM) increased 1.7%, while Bank of America (NYSE: BAC) advanced 2.6%
Along with the tech markets, the energy sector also lost 4.7% amid a drop in oil prices. WTI crude futures shed over 7% to $60 per barrel.
Chair of the Federal Reserve Jerome Powell noted that the central bank is willing to see inflation over its 2% target. He said:
“By saying that they’re willing to let inflation run hot at time inflation concerns are rising is another way for the Fed to say that they are willing to let long-term interest rates rise further.”
Other market news can be found here.