Tech stocks rebounded from an early swoon after Federal Reserve Chairman Jerome Powell pledged anew to support the economic recovery by keeping interest rates low, easing concerns about the impact of rising rates on the monthslong rally in major U.S. indexes.
The Nasdaq Composite Index ended down 0.5% Tuesday after falling as much as 4% earlier in the day. The index, which led the 2020 market bounceback from the coronavirus pandemic thanks to its concentration in shares of technology, biotechnology and other firms promising to grow faster than the economy, has fallen 4.5% since Feb. 12.
Tuesday’s swings highlight a midwinter shift in investor appetite to real-economy sectors such as banks over the past year’s favorites. The reassessment is being driven by investor expectations that Covid-19 vaccinations will pick up, broadening the scope of the economic recovery.
The rise this month in U.S. interest rates is forcing a reassessment of the risks of holding shares that have risen sharply over the past year, intensifying longstanding valuation concerns. The yield on the 10-year U.S. Treasury note has risen more than a quarter of a percentage point so far this month, potentially raising borrowing costs for most companies and crimping profits.
The rebound following Mr. Powell’s testimony before Congress shows that while investors continue to believe U.S. stocks are the best place to invest for the long term, sensitivity about the impact of rising interest rates is acute.
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