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Before the Bell: It continues to be all about interest rates, or more specifically about rapidly rising yields on the U.S. 10-year Treasury notes and the companion 30-year Treasury bond. The fears continue to be that those increasing yields, which are a consequence of an improving economy and greater pricing pressures, will prove competition for stocks. This was clearly the case yesterday when a trio of strong economic readings pushed the 10-year Treasury note yield briefly past 1.61%--or four times the low seen in 2020. Stocks plummeted as a result.

As to the stock market this morning, those yield fears are still with us and the equity futures suggest a further likely retreat in stock prices in the early going this morning. Meantime, as noted, investors received a trio of generally supportive economic metrics yesterday morning before the stock market opened. In lockstep, we learned that initial jobless claims had fallen sharply in the latest week, that orders for durable goods had increased more sharply than forecast in January, and that revised fourth-quarter GDP growth was a solid 4.1%.

Armed with these solid data points, and with rising Treasury yields, stocks opened mixed on the day. But as yields moved up, stocks moved down, finally closing near session lows, with the Dow Jones Industrial Average swooning 560 points. The S&P 500 Index shed 96 points and the NASDAQ Composite tumbled 478 points, or more than 3.5%, extending that tech-heavy index's steep drop for the week. Shares of electric car maker Tesla (TSLA) for example,
fell 60 points, or nearly 10% on the day.

Clearly, the market and investors are unsettled. The big influence is that bond investors suddenly fear higher inflation, something that has largely been absent from the economy for several decades. Indicative of the fears are that since February 10th--or a period of just over two weeks, yields on the 10-year Treasury note have risen from 1.13% to 1.61% at yesterday's highs. Investors, in fact, fret that should inflation move much higher, the Federal Reserve might be tempted to shift to a tighter monetary course. Fed Chair Powell argues against this, but to this point, skittish equity investors have their doubts.

Meanwhile, the casualties in this market continue to be the  overbought high multiple growth stocks, many of which are traded on the NASDAQ and are tech related. Two such issues are Nvidia (NVDA) and Microsoft (MSFT), both of which fell yesterday. Breaking things down further, all 11 of the major equity groups fell in price, with the consumer discretionary and information technology sectors faring the worst, while losses in the utility group was comparatively modest as is often the case in a market rout. – Harvey S. Katz, CFA
        

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.