Dow eventually extended its winning streak to five; Rising yields pressure megacap stocks By Reuters
David French
(Reuters) – It closed partially higher on Thursday, extending its winning streak to five sessions despite weak trading volume and rising U.S. Treasury yields weighing on some of the dominant tech megacaps.
While the indices were largely unchanged, both indices ended slightly in negative territory. This ended the Nasdaq’s streak of four sessions of higher closes and ended the S&P 500’s own streak at three sessions.
In a day with few catalysts, investors reacted to U.S. Treasury yields gradually rising, including the yield on the benchmark 10-year Treasury note that hit its highest level since early May at 4.64% earlier in the session.
A strong seven-year bond auction in the early afternoon did help yields fall slightly, with the 10-year note at 4.58% in late afternoon trade.
Higher yields are traditionally seen as a negative for growth stocks, as they increase the cost of their borrowing to finance expansion. With markets increasingly dominated by the megacap tech stocks known as the Magnificent Seven, their underperformance – especially in lieu of other market catalysts – will put downward pressure on the benchmarks.
The S&P 500 fell 2.45 points, or 0.04%, to 6,037.59, while the Nasdaq Composite lost 10.77 points, or 0.05%, to 20,020.36. The Dow Jones Industrial Average rose 28.77 points, or 0.07%, to 43,325.80.
Six megacaps fell, with Tesla (NASDAQ: ) leading the decline, down 1.8%. The best performer was Apple (NASDAQ: ), which rose 0.3% and continued to move closer to becoming the first company in the world to reach a market value of $4 trillion.
Megacap tech stocks fell somewhat over the summer, as investors sought to rotate some capital into other sectors that offer more value. Still, since the U.S. election in November, they have continued their climb and have outperformed the equally weighted version of the S&P 500, said Adam Turnquist, chief technical strategist for LPL Financial (NASDAQ: ).
“As a technician, what you want to see is breakthroughs in absolute and relative terms, and Mag 7 confirms the framework there, so it’s very constructive guidance at the end of the year,” he said.
The three major indices have hit multiple record highs this year on hopes of a lower interest rate environment and the prospect that artificial intelligence will boost corporate profits.
However, U.S. stocks rallied in the final month of the year after a rally sparked by the November election, as investors gauged the Federal Reserve’s projection of a smaller interest rate cut in 2025.
Looking ahead, LPL Financial’s Turnquist said the past few weeks have seen significant reliance on Magnificent Seven stocks to drive the market higher, and we may be starting to see cracks in this momentum. Therefore, to see further increases in the benchmark index, we will need to see contributions from other sectors of the economy.
One data release on Thursday showed that the number of Americans filing new claims for jobless benefits fell to the lowest level in a month last week, consistent with a cooled but still healthy US labor market.
Markets are in a seasonally strong period — dubbed the “Santa Clause rally” — a pattern attributed to low liquidity, tax loss harvesting and year-end bonus investing.
The S&P 500 gained an average of 1.3% over the last five trading days of December and the first two days of January since 1969, according to the Stock Trader’s Almanac.
Cryptocurrency-related stocks fell after falling 3.9%. MicroStrategy, MARA Holdings and Coinbase Global (NASDAQ: ) all fell between 1.9% and 4.8%.
Among the 11 S&P sectors that traded lower were consumer discretionary, down 0.6%, and the energy index, which slipped 0.1% as it tracked marginal weakness in prices. [O/R]
