Though still near record highs, stocks are slipping Wednesday as new (and much better-than-expected) retail sales data fuels concerns that increased bond yields might sway investors from the stock market and into less risky asset classes.
Shortly after the market open, the Dow Jones industrial average fell 116 points, or 0.4%, after closing at a record Tuesday, while the S&P 500 and tech-heavy Nasdaq shed 0.6% and 0.9%, respectively.
Leading stocks in the S&P Wednesday include Verizon, up 4% after a disclosed investment from Warren Buffett’s Berkshire Hathaway, Chevron Corp, up 3% and oil field services company Halliburton Co., up 2%.
Bolstered by the latest round of stimulus checks, U.S. retail sales soared well past analyst expectations in January, climbing 5.3% over December to about $568 billion, according to U.S. Census Bureau data released Wednesday morning.
The report “fits in perfectly with the present narrative of strong earnings–and rising inflation,” Vital Knowledge Media Founder Adam Crisafulli said Wednesday morning, noting the data should place further upside pressure on Treasury yields, which have ticked up 21 basis points to a one-year high of 1.3% this month.
On the earnings front, shares of booming online retailer Shopify are falling 6% after a fourth-quarter earnings report that beat expectations on all major metrics–including revenues (which hit $978 million), earnings and sales on the platform–but failed to nab the growth seen in prior quarters.
Global stocks, meanwhile, were mixed Wednesday, with Japan’s Nikkei 225 ending the day down 0.6% and Shanghai’s SE Composite up 1.4%, while the United Kingdom’s FTSE 100 slips 0.2%.
Treasury yields have soared to their highest levels since before the pandemic hit domestically–a sign investors are bullish that the economy is set to recover, but also that inflation and stock market volatility could pick up. Morgan Stanley estimates that firms in the S&P 500 could be in for an average 18% valuation haircut, relative to earnings, for every 100 basis-point increase in 10-year Treasury yields.
“We’re seeing nerves creeping in after a spike in U.S. Treasury yields that has seen the 10-year hit a 12-month high. It’s pulled back a little today but the trend appears to have accelerated in recent sessions, and investors are going to be very wary,” Oanda Senior Market Analyst Craig Erlam said Wednesday morning. “The reflation trade has been good for stocks because it’s driven by optimism around the recovery, but that will only continue to a point and if yields start rising at a rate considered too fast, sentiment will quickly change in stock markets.”
What To Watch For
Crisafulli said Friday that a “disorderly or disruptive bond sell-off seems very unlikely” and that 10-year yields aren’t going to see concerning levels anytime soon, though he also notes that even if rates stay at or near current levels valuations should start to shrink relative to corporate earnings.
Categories heading up growth in retail sales included automobile-related spending, building material supplies and sporting goods.