Big Tech’s banner names Apple and Microsoft saw shares slump as interest rates continued to rise. The Nasdaq Composite tumbled 2.5%.
Stocks had a mixed day, but the market was sending a positive message on the economy.
The Dow Jones Industrial Average rose 27.37 points, or 0.09%, to close at 31,521.69. The S&P 500 fell 30.21 points, or 0.77%, to end at 3,876.50, and the Nasdaq Composite fell 341.41 points, or 2.46%, to close at 13,533.05. The biggest gainer on the S&P 500 was People’s United Financial (ticker: PBCT), whose stock soared 14.9% on news that M&T Bank (MTB) agreed to acquire it for about $7.6 billion. Investors in M&T seem approving, with that stock up 3.5%.
The Dow’s value stocks outperformed growth stocks Monday, and 16 of the 30 index’s components rose. The Vanguard S&P 500 Value Index Fund ETF (VOOV) rose 0.6%. The Dow stocks that fell hard were names that investors price for long-term growth trends: Apple (AAPL), Microsoft (MSFT), and Salesforce.com (CRM), which fell 3.0%, 2.7%, and 2.3%, respectively.
Those names, along with others in Big Tech, weighed on the S&P 500—with 28% of its aggregate market capitalization in technology companies—down to its loss. Losers included chip maker Nvidia (NVDA) and streaming giant Netflix (NFLX), which saw shares slide 3.8% and 1.2%, respectively.
A rise in interest rates continues to pressure growth stocks. The 10-year Treasury yield is up to 1.35%. The percentage yield has more than doubled since early in January, and has jumped from 1.1% on Feb. 10. Rising rates erode the value of future cash flows, a measure key to growth companies as they are expected to see a large share of their profits down the line, while mature businesses are profitable now.
The pain has been particularly acute for smaller, unprofitable growth companies, with the Russell 2000 Growth Index down 3.7% since Feb. 10, while the Vanguard S&P 500 Growth ETF (VOOG) is down just over a couple percentage points since then. Data-management provider Okta (OKTA), which has a market capitlization of about $37 billion, and is inconsistently profitable according to FactSet data, saw shares tumble 4.8% Monday.
As for value stocks, higher rates are indicative of an improving economic landscape, which bodes particularly well for the class of stocks, more so than for the growth. Higher rates are still somewhat negative for the present value of profits for value companies, but the near-term earnings momentum that reopenings and economic stimulus can bring is powerful. The Energy Select Sector SPDR Fund (XLE), for example, rose 3.5%, as the price of crude oil also rose 4% to $61.69 a barrel. The SPDR S&P Bank ETF (KBE) rose 1.8% as higher long-term interest make each loan more profitable, while the Industrial Select Sector SPDR Fund (XLI) rose just 0.3%.
The indexes looked ugly Monday, but markets were actually optimistic.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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February 23, 2021 at 05:18AM
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Dow Jones Industrial Average Rose as Value Stocks Won Out Again - Barron's
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