Nasdaq fall pushed by big tech slide has experts warning of inflation surge

(Reuters) – The Nasdaq fell on Wednesday led by a slide in big technology firms as investors rotated out of growth stocks, while awaiting the release of minutes from the U.S. Federal Reserve’s January meeting later in the day.

Shares in Apple Inc, Tesla Inc and Microsoft Corp fell between one per cent and 2.5 per cent, weighing the most on the tech-heavy index. The S&P 500 technology sector fell 0.9 per cent, while the communication services sector dropped 0.1 per cent.

Both the S&P sectors house many stocks with high earnings multiples, which many analysts say may come under pressure with rising yields.

Rising inflation expectations pushed benchmark 10-year U.S. Treasury yields to their highest in a year on Wednesday.

“The reflation trade has been good for stock markets as it’s driven by optimism around the recovery, but that will only continue to a point … if yields start rising at a rate considered too fast, sentiment will quickly change in stock markets,” said Craig Erlam, senior market analyst at OANDA.

The Fed has pledged to pin interest rates near zero until inflation rises to two per cent and looks set to exceed that goal.

That super-easy stance, coupled with the Biden administration’s proposed $1.9 trillion spending bill for pandemic relief, has some analysts warning of a coming surge in inflation.

“While the new package may be large, it will add stimulus to an economy still below potential, and the spending will be spread out over a couple of years,” said Mark Haefele, chief investment officer, UBS global wealth management in Zurich.

“So, while a near-term rise in inflation is likely, we expect the Fed to look past that and keep rates on hold.”

Data showed U.S. retail sales rebounded sharply in January after households received additional pandemic relief money from the government, suggesting a pick-up in economic activity after being restrained by a fresh wave of COVID-19 infections late last year.

At 9:56 a.m. ET the Dow Jones Industrial Average was down 17.73 points, or 0.06 per cent, at 31,505.02, the S&P 500 was down 11.15 points, or 0.28 per cent, at 3,921.44, and the Nasdaq Composite was down 84.07 points, or 0.60 per cent, at 13,963.43.

Shares in Dow components Verizon Communications Inc and Chevron Corp jumped about 3.5 per cent after Warren Buffett’s Berkshire Hathaway Inc disclosed major investments in the companies on Tuesday.

Hotel operator Hilton Worldwide Holdings Inc slipped three per cent on reporting a third straight quarterly loss as bookings fell due to coronavirus-induced travel disruptions.

Declining issues outnumbered advancers for a 1.73-to-1 ratio on the NYSE and a 1.91-to-1 ratio on the Nasdaq.

The S&P index recorded 13 new 52-week highs and no new low, while the Nasdaq recorded 92 new highs and six new lows.