Technology stocks rallied Tuesday, putting the Nasdaq Composite on course to notch its biggest gain of the year a day after sliding into correction territory.
Investors appeared to be bargain-hunting, pouncing on stocks that had been beaten down over the past several weeks. Shares of Tesla, Roku and Square were all up double-digit percentages in recent trading, while tech’s heavyweights, Apple, Amazon.com and Facebook, all rose more than 4%.
At the same time, a selloff in government bonds appeared to be on pause. The yield on the 10-year Treasurys ticked lower to 1.538% on Tuesday. It had ended the previous day at 1.594%, the highest level in more than a year.
The stabilization in bond markets is likely to help tech shares recoup some of their losses, investors said. Money managers expect many companies in the sector to continue to benefit from increased online shopping and at-home access to media, entertainment and computing options even as Covid-19 lockdowns ease.
“It is this buy-the-dip mentality,” said Daniel Morris, chief market strategist at BNP Paribas Asset Management. “It’s not like we’ve changed our long-term view on tech. Everyone expects it to do well—it was just really expensive.”
The Nasdaq rose 4.1%, while the S&P 500 added 2%. The Dow Jones Industrial Average added more than 210 points and has flirted with record levels.
The buy-the-dip mentality had been largely absent during a broader rotation out of growth stocks and into shares of companies better positioned to benefit from an economic upswing. But opportunistic buying has been a reliable constant during previous episodes of stock-market pullbacks—look no further than the dizzying climb stocks mounted after last March’s slide into a bear market territory.
On Tuesday, that buying translated into massive gains that helped cut the recent losses suffered by some stocks in as much as half. Helping the market’s overall mood was signs that lawmakers remain on track to pass the latest version of the $1.9 trillion coronavirus stimulus package later this week.
But some investors say the big gains likely won’t translate into an end of the volatility. Too many variables remain in play, from whether the additional stimulus Congress plans to inject into the economy will lead to inflation to concerns that high-growth stocks like Tesla remain too expensive.
“There will be heightened volatility as long as the path of inflation remains as uncertain as it is,” said Jase Auby, chief investment officer for the Teacher Retirement System of Texas. Mr. Auby said the pension fund’s stock allocation is currently tilted toward value stocks, or shares of companies more likely to benefit in a reflationary environment.
For now, investors appeared to be putting those concerns on hold.
Tesla shares led the S&P 500, rising 19%, cutting their loss over the past month to about 21%. Roku shares added about 10%, while Square gained 11%.
Big tech stocks also rallied. Apple shares rose 4.4%, Amazon added 4.3% and Facebook gained about 5% in recent trading.
Several of those stock are featured in ARK Investment Management’s five popular exchange-traded funds, all of which were trading up more than 7%. The gains helped stem a wave of losses that had knocked the five actively managed funds down more than 20% from their recent highs.
More broadly, 10 of the 11 sectors of the S&P 500 were in the green, suggesting investors were enthusiastic about resuming their broad buying of stocks—at least for now. Energy stocks, which have outperformed all other sectors throughout the rotation over the past month, fell 1%.
Meme stocks rallied, too. Shares in GameStop gained 21% as shares climbed for a second day after the board tapped Chewy co-founder Ryan Cohen to lead a committee dedicated to transforming the retailer. AMC Entertainment added more than 10%.
Some investors now expect that bond markets could calm as appetite for U.S. government debt revives following the sharp rise in yields. The 10-year Treasury yield was as low as 0.915% near the start of the year.
“We think a big part of the bond-yield move has played out,” said Hani Redha, a portfolio manager at PineBridge Investments. “At this level of yields, we do expect additional buyers to come in. That tends to stabilize the yield level.”
Overseas, the pan-continental Stoxx Europe 600 ticked up 0.8%. In Asia, major indexes were mixed. The Shanghai Composite dropped 1.8%, and South Korea’s Kospi declined 0.7%. Japan’s Nikkei 225 advanced 1%.
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