The Stock Market Is Getting Weird

 Francis Scialabba

All three major US indexes tumbled yesterday as investors prepared for a wave of economic growth.  You might think that sentence needs to be fact-checked, but in fact it has zero Pinocchios. Bloomberg explains what's going on:  "From stocks to bonds and commodities, traders are moving in sync on the belief that the most ambitious vaccination campaign in history is about to supercharge economic growth and unleash price pressures that have long been dormant." Let's analyze the bond market Perhaps not the best intro line on Hinge, but it’s crucial for understanding what's currently happening in the stock market.  Investors are dumping bonds, sending yields (which is your return on a bond) higher. Much higher. This month alone, the yield on the 10-year Treasury note has gained the most in four years. Yesterday, it touched a one-year high above 1.6%.  Rising yields are spooking the stock market for a couple reasons: It shows that investors are generally worried about inflation (whether they should be or not). Remember, Fed Chair Jerome Powell said this week he wasn't concerned that inflation would spiral out of control. The more a bond yields, the more it competes with stocks. Yesterday, the yield on the 10-year note briefly surpassed what's known as the S&P's "dividend yield," a threshold investors use to measure the relative attractiveness of stocks vs. bonds. Right now, it's a tight contest.  Tech stocks are getting hit especially hard Shares in companies like Amazon, Microsoft, and Tesla, all of which thrived at the height of the pandemic, are becoming less attractive in this brave new stock market world. "Value" stocks like utilities, which may have less growth potential than a high-flying software company but are also less risky, are gaining more favor. Some perspective before we move on: The Dow hit a record high on Wednesday, and the S&P is less than 3% below its all-time high.