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  • The Nasdaq 100 hit lows of 12,800 on Thursday amid steep selling due to rising bond yields.
  • Strong data, dovish Fed speak and good vaccine supply news is being ignored.

The Nasdaq 100 index has been under heavy selling pressure on Thursday, and currently trades pretty much bang on the 13,00 level, having dropped as low as 12,800 in recent trade. At present, the index trades with losses of about 2.3% on the day.

Bond yields surge

All three of the major US indices have been under selling pressure on Thursday, with the S&P 500 currently down close to 1.5%, the Dow down just over 1.0%. Losses in the Nasdaq 100 are steeper because the sell-off is being driven by a continued surge in longer-term US government bond yields; the US 10-year bond is up more than 10bps on the day and is very close to the 1.50% mark, as touted CTA selling of bonds goes into overdrive and following a very disappointing 7-year bond auction (the 7-year bond yield is correspondingly up around 15bps on the day).

Note that the Nasdaq 100 is disproportionately weighted (in terms of market capitalisation) towards “growth” and “momentum” stocks with very high price-to-earnings ratios. A high price to earnings ratio leaves the (theoretical) value of a stock disproportionately exposed to a rise in long-term interest rates. Hence why “value” stocks (with low price-to-earnings ratios) are outperforming growth and momentum stocks again on Thursday.

Though growth and momentum stocks (such as Big Tech and Tesla) are suffering the worst, no sectors have managed to escape the selling; crucially, the yield on the 10-year US government bond briefly surpassed the S&P 500 stocks average dividend yield on Thursday (which is currently 1.48%). This seems to have triggered some selling of the broader market in and of itself.

Amid all the panic about rising yields, US equity markets have largely ignored the positives of 1) Solid US data; Weekly Jobless Claims and January US Durable Goods Orders numbers were both better than expected, 2) good news on the vaccine supply front; Pfizer reiterated its target to produce 2B vaccine doses in 2021 and 3) dovish Fed speakers; FOMC members Esther George, James Bullard, Raphael Bostic and Randal Quarles all reassured markets that the Fed will maintain accommodative policy for the foreseeable future.

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