S&P 500 under pressure soars even higher as tech sector selling pressure

• The S&P 500 is down about 0.6% as yields rally, hurting the dominant tech sector.
• The latest US employment report, albeit mixed, has been interpreted as supporting the Fed’s tightening plans for 2022.

The S&P 500 it is trading lower as its heavyweight tech sector suffers amid a surge in long-term US government bond yields in the wake of the latest US labor market report. The index has fallen about 0.6% and is trading near 4,670, after falling more than 3.0% from Tuesday’s all-time highs near 4,820. The rise in bond yields appears to be the market’s way of saying that the latest employment report, despite non-farm payroll gains in December disappointing expectations, maintains monetary policy tightening plans of the Fed for 2022 on the right track. Either way, higher long-term returns increase the opportunity cost of holding stocks whose valuation is derived in bets for future earnings growth, thus weighing on their value.

As a result, so-called “growth” stocks are underperforming and this is weighing heavily on the Nasdaq 100 index, which has fallen more than 1.0% on the day and tested the 15,500 level. That means the index is more than 6.0% below the highs it posted above 16,600 just after Christmas. Rising bond yields are giving the S&P 500 financial sector a boost (+ 0.4%), while the defensive S&P 500 sectors such as utilities and consumer staples also hold up well. The disproportionate weighting of stocks in so-called “value” sectors that tend to hold up better when yields are rising means the Dow is outperforming the other large US indices and is down just 0.1% on the day.

Equity strategists this week warned that rising yields amid decisively more hawkish Fed policy in 2022 pose a significant downside risk to “growth” stocks in 2022 and that, as a result, the turnover in “value” and “cyclical” stocks may well continue. Some strategists have suggested that European and Japanese equities, which are less dominated by the tech sector, may outperform US indices. Certainly, that has been the case so far this year, with the Stoxx 600 down just 0.5% for the week versus losses of more than 2.0% for the S&P 500.