A retreat in technology stocks continued Tuesday as U.S. stocks slid and investors awaited Federal Reserve Chairman Jerome Powell’s testimony in Congress on the health of the economy.
The S&P 500 ticked down 0.5%. The benchmark stocks gauge on Monday fell for a fifth consecutive day, its longest losing streak since last February. The Nasdaq Composite Index dropped 2% as technology stocks continued to lead the market lower. The Dow Jones Industrial Average retreated 49 points, or 0.2%.
A sharp rise in yields on U.S. government bonds in recent days has sapped investors’ appetite for riskier assets, including stocks. Shares in technology companies, which have powered the broader market higher for much of the past year, are seen as particularly vulnerable. That is because many tech companies’ valuations are tied to their future earnings potential. Those profits are less valuable in today’s terms when investors apply a higher discount rate.
The rise in bond yields “naturally does cause investors and cause markets to re-examine the view on equities,” said Paul Jackson, global head of asset allocation research at Invesco. Investing in government bonds is beginning to look more attractive for the first time in months, he said.
But “the level at which bond yields become truly problematic for equities is a long way from where we are now,” Mr. Jackson added.