The S&P 500 ended slightly higher, 0.51% up, on Friday as financial shares rose after the benchmark Treasury yield jumped to its highest in nearly three years while tech and other big growth names declined.
The S&P 500 financials sector gave the S&P 500 its biggest boost, as it closed out Friday 0.44% higher, while technology was its biggest drag. Nasdaq ticked down, by -0.16%.
For the week, the S&P 500 and Nasdaq registered gains and the Dow was close to flat.
Investors are assessing how aggressive the Federal Reserve will be as it tightens policy after Fed Chair Jerome Powell this week said that the central bank needed to move “expeditiously” to combat high inflation and raised the possibility of a 50-basis-point hike in rates in May.
10-Year Treasury Yield 2.5%
The yield on the 10-year Treasury note rose above 2.5%.
The equity market is pricing in a higher rate environment, said Keith Buchanan, portfolio manager at Globalt Investments in Atlanta.
That is causing bank stocks to outperform, while “adding more pressure to the riskier elements of the market,” such as growth shares, he said.
Higher rates tend to be a negative for tech and growth stocks, whose valuations rely more heavily on future cash flows.
The defensive S&P 500 utilities index, which is considered a bond proxy, hit a record high.
According to preliminary data, the S&P 500 gained 23.78 points, or 0.53%, to end at 4,543.94 points, while the Nasdaq Composite lost 21.86 points, or 0.15%, to 14,173.22. The Dow Jones Industrial Average rose 153.40 points, or 0.44%, to 34,861.34.
Shares of growth companies like Microsoft Corp and Nvidia Corp eased after leading a Wall Street rebound this week. Shares of Wells Fargo & Co gained.
“The market’s really macro driven,” said Steve DeSanctis, small- and mid-capitalization equity strategist at Jefferies in New York. “Company fundamentals haven’t really mattered.”
Economists at Citibank are expecting four 50 basis points interest rate hikes from the Fed this year, joining other Wall Street banks in forecasting an aggressive tightening path against the backdrop of soaring inflation.
The U.S. central bank last week raised interest rates for the first time since 2018.
The Ukraine-Russia conflict will keep investors on edge over the weekend. Moscow signaled it was scaling back its ambitions in Ukraine to focus on territory claimed by Russian-backed separatists.
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