Stocks in the red are something we don’t see too often, especially in the last few months. After the initial fall in March of 2020, markets have behaved extremely bullish. But today things seem to have taken a turn, at least for the short term that is.
The Dow Jones Industrial Average dropped about 550 points on Thursday as a rush of selling that started in the technology area brought down areas of the market. Indexes like NASDAQ had it even worse down over 3%. The cause of this comes from a quick ascent in yields, with the 10-year Treasury note seeing its greatest one-day increase since November of 2020. An important thing to understand is the relationship between bond prices and bond yields. Bond prices and yields move in the opposite direction: When bond yields go up, prices go down, and when bond yields go down, prices go up, like a seesaw.
The reasoning behind why the yield went up is not certain, but experts seem to speculate that it was due to a combination of Inflation, Insufficient Fed action, and Forced sellers. So how does this relate to stocks? Well USA Today puts it well, gains could be threatened because higher yields make it more expensive to borrow money, and that tends to slow down economic growth, which could be bad for stocks – especially big growth stocks as seen in the tech sector. Bonds and yields are clearly affecting markets and stocks, so paying attention to them may improve the scope of your due diligence.
If you wanna learn more about, bonds, yields, and all that good stuff just head on over to Invstr academy on the Invstr App.
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.