Tech stocks pull down S&P 500, Nasdaq Composite

Technology stocks have come under pressure in the new year as government bond yields have risen. Higher returns can reduce the appeal to future earnings promised by many technology stocks. The S&P 500’s technology sector fell 2.2% on Thursday, bringing the losses so far this year to 5.2%.

The largest US stocks helped pull the market down, with Apple shares falling 1.5% and Microsoft shares falling 3.8%. More economically sensitive parts of the stock market held up better, with the industrial sector of the S&P 500 rising 0.3%.

The yield on the benchmark index for 1[ads1]0-year US government bonds ticked down to 1.708%, from 1.724% on Wednesday. It stays well above the 1,496% that closed in 2021. Bond yields rise when prices fall.

As yields on long-term bonds move higher, “you tend to repurchase these growth stocks,” said Tom Hainlin, national investment strategist at US Bank Wealth Management. “If you raise that interest rate, it puts pressure on the present value of these companies.”

Trading has been choppy in recent days as investors consider the way forward for equities. The S&P 500 closed 1.5% from the record on Wednesday after rising 27% last year.

Investors are closely following developments that may affect the Federal Reserve’s calculations to tighten monetary policy to counter inflation. Central bank officials have signaled that an interest rate increase may occur as soon as March. Fed’s James Bullard said on Wednesday that four increases are likely in 2022.

Federal Reserve Governor Lael Brainard told Congress on Thursday that efforts to reduce inflation are the central bank’s “most important task.” Brainard is the White House ‘nominee to serve as the Fed’s No. 2 official.

The Fed’s interest rate committee “has estimated several increases over the year,” she said. “We will be able to do that as soon as the purchase of assets is completed. And we simply have to see what the data requires during the year.”

“The main story is the market view of the central bank’s next step. The market balances two things: less support from monetary policy, but overall the underlying economy is good, and we believe that the earnings figures that will start to come now will be quite strong, says Luc Filip, investment manager at SYZ Private. Banking.

Investors on Thursday examined data showing that applications for unemployment benefits rose to a seasonally adjusted 230,000 last week, higher than economists had expected. A tight US labor market has kept applications close to pre-pandemic bottoms for the past two months.

Other data showed that the prices suppliers charge for companies and other customers cooled in December. The Ministry of Labor said that the producer price index rose 0.2% in December from the previous month, the lowest rate since November 2020.

“It fits into a larger narrative that inflation is likely to peak this quarter,” said Jack Ablin, founder and chief investment officer of Cresset Capital.

The earnings season starts this week, with major financial firms including BlackRock,

Citigroup,

JPMorgan and Wells Fargo are due to report on Friday. Investors are on edge after Jefferies Financial Group published earnings and earnings that missed analysts’ estimates on Wednesday, said Jeffrey Meyers, a consultant at Market Securities.

Analysts expect earnings from companies in the S&P 500 to rise 22% in the fourth quarter from a year earlier, according to FactSet.

In individual shares, shares in Delta Air Lines rose 2.6%, despite the fact that the company had a quarterly loss, after the airline’s CEO said that he expected it to recover quickly after the effect of the Omicron variant. Shares of homebuilder KB Home rose 16% after earnings exceeded analysts’ expectations.

Abroad, the pan-continental Stoxx Europe 600 fell less than 0.1%.

In Asia, most major benchmark indices fell. The Shanghai Composite Index lost 1.2% due to concerns about China’s recent Covid-19 eruption after the port city of Tianjin reported higher infections. Japanese Nikkei 225 withdrew 1%.

Genting Hong Kong,

a cruise ship operator, plunged 56%. The share resumed trading on Thursday after a German subsidiary filed for insolvency, which triggered default. Australia’s Crown Resorts jumped almost 9% after private equity giant Blackstone raised its takeover bid for the company.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Karen Langley at karen.langley@wsj.com