US equities slipped on Tuesday as rising bond yields and a calmer banking sector led mega cap technology stocks to give up some recent gains.
The S&P 500 dipped 0.2 per cent, its first decline in three days, with tech giants such as Alphabet and Apple the biggest drags on the index. The tech-heavy Nasdaq Composite slid 0.5 per cent.
Large tech groups had been some of the biggest beneficiaries of the financial sector turmoil that started with the collapse of Silicon Valley Bank earlier this month, but the sector has lost ground in recent days.
Jim Tierney, a growth-focused portfolio manager at AllianceBernstein, said: “As the peak concerns around the banking sector are hopefully behind us, investors have started to broaden out their exposures and some of that has been at the expense of the largest tech companies . . . higher rates don’t help long-dated assets either.”
Expectations for a more dovish Federal Reserve boosts stocks that promise long-term growth, and the largest tech groups were seen as less exposed to a potential downturn in bank lending.
Bank stocks, in contrast, were relatively steady on Tuesday after notching up strong gains in the previous session. The KBW bank index added a further 0.3 per cent, having risen 2.5 per cent on Monday as regulators confirmed First Citizens Bank would purchase part of the collapsed SVB. First Republic, which has been among the hardest-hit in the fallout from SVB, fell 2.3 per cent after adding almost 12 per cent on Monday.
“At the moment no news is good news. People are waiting for the dust to settle and to see if there is another banking stress,” said Nadège Dufossé, global head of multi-asset at Candriam. “I expect better news flow around inflation in coming months but for now we don’t know the impact on growth. We’re not out of the woods yet and will continue to see volatility.”
Bond markets were calm as investors await fresh economic data and testimony from Fed later in the week. The yield on the 10-year US Treasury inched up 0.03 percentage points, to 3.56 per cent. Yields rise when prices fall.
In Europe the Stoxx Europe 600 Banks index, which includes the region’s biggest lenders, closed up 0.7 per cent. Commerzbank was among the biggest gainers, up 1.5 per cent. Deutsche Bank, however, fell 1.3 per cent.
The mood was reflected in broader share indices, with the region-wide benchmark Stoxx 600 flat and Germany’s Dax up 0.1 per cent. London’s FTSE 100 was up 0.2 per cent.
In currency markets, the dollar index, which measures the greenback against a basket of six peer currencies, fell 0.4 per cent. The US currency has fallen 3 per cent in the past two weeks as investors’ expectations that the Fed would raise interest rates have receded.
Investors and economists are now weighing the impact of the banking turmoil on growth and the likelihood and severity of a recession. According to analysts at UBS, the Fed’s downgrade of its 2023 growth forecast “suggests that either the banking stress is worse than investors currently know (the Fed gets bank data before the market) or the Fed is being conservative with its growth assumptions because the credit tightening impact is highly uncertain. For investors, the safest conclusion is that the risk of a recession has gone up.”
Brent crude oil rose 0.7 per cent to $78.65 a barrel, while West Texas Intermediate, the US benchmark, was up 0.5 per cent at $73.20 a barrel.
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