As Treasury rates traded higher and legislators resumed their budget talks, U.S. equities dropped significantly on Tuesday, with tech names pulling down the wider markets.
The Nasdaq Composite fell 2.83% to its lowest level since March, while the S&P 500 fell 2.04%. The Dow Jones Industrial Average closed down 1.63%.
The 10-year Treasury yield rose to 1.567% on Tuesday, as investors bet that the Federal Reserve will stick to its commitment to reduce its bond-buying stimulus as inflation rises. After the Fed hinted last week that it will cut its $120 billion in monthly bond purchases “soon,” the 10-year yield reversed to its highest levels since June.
Tech stocks have fallen as interest rates have risen, and as a result, popular stocks seem overpriced. Higher interest rates also make it more difficult for businesses to fund their expansion and stock buybacks. Facebook, Microsoft, and Alphabet all fell more than 3%. Nvidia, one of the largest semiconductor companies, fell 4.5%.
A budget showdown in Washington was also weighing on the markets. On Monday, the Senate GOP blocked a House-passed package that would have financed the government through December and extended the debt ceiling suspension until December 2022.
To prevent a government shutdown, Congress must approve financing by Friday, and Treasury Secretary Janet Yellen reminded Congress in a letter on Tuesday that the debt ceiling must be raised by Oct. 18 to avert a federal default.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.