The booming technology trade that lifted stocks to new highs during the pandemic continued to unravel Wednesday as Federal Reserve Chair Jerome Powell downplayed inflation concerns that have rattled the market in recent weeks.
- The Dow Jones industrial average soared 420 points, or 1.4%, Wednesday, while the S&P 500, which broke a five-day losing streak on Tuesday, and the tech-heavy Nasdaq climbed 1.1% and 1%, respectively.
- Energy firms continued to head up market gains, with Occidental Petroleum, EOG Resources and Cabot Oil & Gas up 8%, 7% and 6%, respectively; the S&P 500 Energy Index has soared 27% this year—more than double the return of any other sector over the same period.
- Technology stocks, on the other hand, continued to slip: Apple, Amazon and Facebook all fell close to 1% Wednesday.
- Elsewhere in the market, Tesla rival Fisker Inc. soared nearly 40%, surpassing a record high from November, after announcing a collaboration with Taiwanese manufacturer Foxconn on a new electric vehicle project.
- Shares of payments fintech Square, meanwhile, sank about 7% after the firm disclosed in a better-than-expected fourth-quarter earnings report that it has doubled down on a $50 million bitcoin investment from October, purchasing $170 million more of the world’s largest cryptocurrency since.
- Yields on the ten-year Treasury–which moves inversely to stocks–rose 50 basis points Wednesday morning to 1.4%, tacking on to their highest level since last February following congressional testimony from Federal Reserve Chair Jerome Powell, who insisted Tuesday that monetary policy would remain accommodative despite inflationary concerns.
“We’re going through a very choppy period in the markets, with investors uncertain how to read the movements we’re seeing in bond markets,” Oanda Senior Market Analyst Craig Erlam said Wednesday morning. "The curve is steepening, and investors are fretting a little about the prospect of higher inflation. Policymakers are doing their best to alleviate these fears, but there appears to be a growing consensus that we will see more inflation this year as a result of the turbocharged recovery everyone is anticipating."
WHAT TO WATCH FOR
Erlam says the big question around inflation is how temporary any spike may be and whether lawmakers respond to it. He expects they may have a more relaxed approach to inflation than in the past. “This may make for a jumpy year in the markets, with any signs of inflation seeing jitters quickly return and any rallies to stall, just as we’re experiencing at the moment,” he notes.
Publicly traded MicroStrategy, one of the largest corporate bitcoin investors, said Wednesday morning it spent approximately $1 billion to acquire 19,452 more bitcoin tokens. The firm purchased while prices were down nearly 10% from a record high of $58,000 earlier this week. Bitcoin is currently trading at about $49,500.
Originally down in early morning trading, stocks surged after Fed Chair Powell downplayed inflation concerns before the House Financial Services Committee on Wednesday, saying that it may take the U.S. more than three years to reach a key inflation target.