Tech Stocks Lagged as Bond Yields Hit New Highs; Earnings in Focus—and What Else Happened in the Stock Market Today

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Stocks rebounded in early afternoon trading on Monday after bond yields hit new highs.

Photo by Spencer Platt/Getty Images

Stocks dropped Monday as bond yields hit fresh highs, though markets are shifting their focus to earnings season.

The Dow Jones Industrial Average closed down 40 points, or 0.1%. The S&P 500 was flat, while the Nasdaq Composite declined 0.1%.

The 10-year Treasury yield rose to 2.87%, a new pandemic-era closing high, above the previous one of 2.83% hit Thursday before markets closed for Good Friday. Bond yields have jumped recently, as markets expect the Federal Reserve to soon reduce its bondholdings as part of its effort to fight relatively high inflation.

Higher bond yields hurt tech stocks the most because many technology companies are fast-growing and valued on the basis that they’ll churn out a chunk of their profits many years in the future. Higher long-dated bond yields make future profits less valuable. 

This continues a recent trend.

The Nasdaq had fallen 9% from March 29, a multi-month peak to Thursday’s closing. In that same time period, the 10-year Treasury yield has risen 2.4%. The problem for tech shares in the near term is that yields could keep going higher for a short period, even if the rise slows down a bit. 

But many tech names performed just fine, as the selling wasn’t seen across the board. The Nasdaq 100 index of large market capitalization stocks gained 0.1. And just over one-third of Nasdaq 100 stocks eked out a gain on the day, according to FactSet. Sure, that’s partly because many tech stocks have already seen big declines on higher bond yields in the last few weeks. But also, traders are gearing up for earnings season, which often reveals winners and losers within specific sub-businesses. 

“This quarter’s earnings season will be a welcomed event for investors as the focus can once again shift back to the micro from the macro and hopefully we’ll get some clarity on the latter in the process,” wrote Michael Reinking, senior market strategist at New York Stock Exchange. 

Indeed, investors are now hoping that earnings season can bring stocks higher. In the early going, first-quarter earnings reports for S&P 500 companies have beaten expectations, in aggregate, by 8.7%, according to Credit Suisse. 

But so far, earnings reports haven’t provided a boost. The average one-day stock movement after earnings for a company that surpasses estimates has amounted to a 0.4 percentage point outperformance of the S&P 500’s move, according to Wells Fargo. But companies that miss on earnings have seen their stocks underperform the index by 2.9 percentage points. 

That’s partly because stocks still look expensive, especially as bond yields rise. Plus, macroeconomic headwinds threaten to lower sales and profit expectations in the coming months. This all puts an even greater burden on companies to produce even higher profit than expected in order to move their stock prices upward. 

“The kickoff of earnings season did little to change a familiar narrative for the market last week: Stocks continued to search for sustained upside momentum amid high inflation readings, interest rates on the rise, and dashed hopes for a cease fire in Ukraine,” wrote Chris Larkin, managing director of trading at ETrade.  

The good news is that it is still early in earnings season. Just this week, about 15% of the S&P 500’s total market capitalization will report earnings. Among the reporters will be Tesla (ticker: TSLA), Netflix (NFLX) and Johnson & Johnson (JNJ). 

Asian shares finished Monday’s session with losses after China released mixed economic data. China’s gross domestic product in the first quarter rose a more than expected 4.8%, while retail sales fell 3.5% in March, wider than expectations.

Markets in Hong Kong remained closed for the Easter holiday, as was most of Europe.

Here are six stocks on the move Monday:

DiDi Global (DIDI) shares traded in the U.S. sank 19% Monday after the Chinese ride-hailing company reported a fourth-quarter revenue decline of 12.7%, and said it was preparing to delist from the New York Stock Exchange.

Twitter (TWTR) rose 7.6% after the social media company on Friday adopted a so-called poison pill in a bid to ward off Elon Musk’s unsolicited $43 billion takeover offer.

Bank of America (BAC) stock gained 3.2% after the company reported a profit of 80 cents a share, beating estimates of 75 cents a share, on revenue of $23.3 billion, above expectations for $23.2 billion. 

Gap (GPS) stock added 1.3% after getting upgraded to Equal Weight from Underweight at Morgan Stanley. 

Biogen (BIIB) stock was flat after getting upgraded to Overweight from Equal Weight at Wells Fargo. 

Wendy’s (WEN) stock fell 2.1% after getting downgraded to Market Perform from Outperform at BMO. 

Mark Lehmann of JMP Securities reveals what he’s buying amid market weakness while Al Root of Barron’s highlights what to expect from Tesla’s first-quarter earnings.

Write to Joe Woelfel at joseph.woelfel@barrons.com and Jacob Sonenshine at jacob.sonenshine@barrons.com