It was an ugly week for the Nasdaq Composite, which dropped 4.9% as long-term interest rates continued to rise sharply and fuel valuation-oriented concerns. The S&P 500 fell 2.5%, the Russell 2000 fell 2.9%, and the Dow Jones Industrial Average fell 1.8%.
The yield on the 10-yr Treasury note briefly spiked to 1.61% this week, which was above the S&P 500’s dividend yield of 1.51% and 52 basis points higher than where it started the month. It settled the week at 1.46% or 11 basis points higher from last week. The 2-yr yield increased three basis points to 0.13%.
Fed Chair Powell addressed the rate situation in his semiannual testimony before Congress, explaining that it was expectations for economic growth and inflation that have contributed to the higher yields. On inflation, Mr. Powell added it could take three or more years for the economy to reach the Fed’s inflation goal. In other words, the Fed will stay extraordinarily accommodative for the foreseeable future.
Nevertheless, it was the sharp rate of change that worked against risk sentiment and presumably functioned as an excuse to take profits.
Ten of the 11 S&P 500 sectors closed in negative territory, led lower by the consumer discretionary (-4.9%), information technology (-4.0%), and utilities (-5.1%) sectors with steep declines. The Philadelphia Semiconductor Index fell 4.8%, the iShares Russell 1000 Growth ETF (IWF) fell 4.5%, and the ARK Innovation ETF (ARKK) fell 14.6%.
The energy sector (+4.3%), however, rallied alongside oil prices ($61.45/bbl, +2.30, +3.9%), both of which finished the week with 4% gains.
On a technical level, the S&P 500 briefly fell below its 50-day moving average (3808) on Friday before closing above it.
Week in perspective provided by Briefing.com