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  • The Dow and the Financials and Industrials sectors all hit intra-day all-time highs on Monday.
  • The S&P 500, however, was dragged lower in the final minutes of trade as the tech sell-off deepened.
  • The Nasdaq 100 cratered and fell back into correction territory (i.e. down over 10% from recent highs).

The Dow Jones Industrial Average managed to print all-time intra-day highs on Monday of 32148, only the second time the index has been above the 32000 level. Selling into the US equity cash close saw the index pullback below the big figure, however, though the Dow did still manage to close with gains on the day of around 1.0%.

Things weren’t so positive for the other two major US indices; the S&P 500, which had spent most of session in the green, slipped back into negative territory into the close and ended the session lower by about 0.5%. The index was weighed by a sharp sell-off in Big Tech (Apple down over 3.5%, Facebook down 2.5%, Google down 3.5%, Amazon down 0.7%, Microsoft down 1.1%), in Semiconductors (SOX Index down 5.3%) and in Tesla (down over 5% for its fifth straight session of over 3.8% losses).

The reason behind the sell-off in the above mentions names was again an increase in long-term borrowing costs, as seen by rising US government bond yields, particularly in the belly of the treasury curve; 5-year yields were up over 7bps to above 0.85%, 7-year yields were up over 6bps to nearly 1.30% and 10-year yields rose nearly 5bps to above 1.60%.

Naturally, with all of these stocks underperforming, the Nasdaq 100 had a rough day, dropping 2.9% and closing down more than 10% from its 12 February all-time closing high, confirming that the index had fallen into correction territory. In terms of the outperforming sectors, the S&P 500 financial sector index closed 1.3% higher at a record high, boosted by higher yields. S&P 500 industrials were the next best performers, with the index rising 1.05% and also rising to a record high.

Driving the day

While rising yields were the main factor behind the sell-off in tech and high price-to-earnings ratio names, another culprit seems to also have been a continuation of the rotation out of stocks that benefit from lockdown (i.e. tech) and into stocks that benefit from people from reopening (the hospitality, tourism and retail sectors to name a few). This makes sense given continued momentum in the US towards an imminent full economic reopening; AstraZeneca is reportedly stockpiling vaccines in the US as it awaits EUA, with the US vaccine rollout set for further acceleration and the US Centre for Disease Control is relaxing social distancing and mask guidelines on those who have been fully vaccinated.

Meanwhile, smaller-cap stocks also stand to benefit disproportionately from the next US fiscal stimulus package, which was just passed by the Senate over the weekend. The Democrats are talking about a second vote on US President Joe Biden’s $1.9T stimulus package in the House as soon as Wednesday. The Russell 2000 index ended the session up 0.5%.

Other fundamental catalysts were few and far between; bullish commentary from billionaire hedge fund manager David Tepper, whose comments have frequently moved markets in the past, were cited as behind a pre-market rally in equities. For reference, he said that he went “all in” on stocks on last Friday’s low and that it’s very difficult to be bearish on stocks right now. Meanwhile, Tepper added that he thinks the sell-off in US government bond markets that has driven yields higher in recent weeks is likely over, given increased buying interest from abroad.

Looking ahead, key events for US equity investors to take note of this week include; Wednesday’s Consumer Price Inflation data release for February and 10-year government bond auction. If the former is stronger than expected and the latter shows poorer than expected demand for US government debt, this would provide fresh impetus to the recent move higher in bond yields, something which could further hurt Big Tech and growth stocks. Meanwhile, US Weekly Jobless Claims on Thursday and Producer Price Inflation and Michigan Consumer Sentiment on Friday will both also be in the spotlight.