Wall Street couldn't find many reasons to keep pushing stocks higher, amidst rising bond yields, hawkish Fed rhetoric, and a surge in equity bullishness among retail investors, which is often regarded as a contrarian indicator.
The S&P 500 finished lower, wiping out a nearly 1% rally. Options traders increased their bets on a 6% federal reserve peak rate, nearly a percentage point higher than consensus. The yield on the two-year note hit 4.5%, having previously pushed above the 10-year rate by the widest margin since the early 1980s — a sign of waning confidence in the economy's ability to withstand further tightening.
Fed Bank of Richmond President Thomas Barkin said it is critical to continue hiking to rein in inflation, adding to the chorus of officials signaling that the central bank has a long way to go. Data on jobless claims bolstered the notion of a tight labor market, while mortgage rates rose for the first time in more than a month.
Higher-duration sectors, such as technology and consumer discretionary, have led stock gains this year, while low-duration sectors, such as energy and utilities, have underperformed. This is a reversal of the trend that began in late 2021 when investors began to avoid long-term stocks as inflation began to rise rapidly.
Today the performance of mega-caps in those two industries was mixed. Tesla extended its breakneck rally, while Alphabet, the parent company of Google, extended a two-day selloff as concerns about the competence of Bard, the ChatGPT rival it unveiled on February 6th.