S&P 500 drops under 4450 as yield rally hits tech/growth stocks, focus shifting to US CPI, bank earnings

Major US equity indices fell on Monday, led by a decline in large-cap tech/growth stocks as US yields continued to surge as bond market participants upped their Fed tightening bets. The S&P 500 was last down slightly more than 1.0% on the day in the 4440 area and flirting with its 50-Day Moving Average to the downside at 4427. The tech-heavy Nasdaq 100 index was last down over 1.5% near 14,100, having now broken below its 50DMA in the 14,300s, while the less bond yield sensitive Dow was down about 0.7% in the 34,500 area and still above its 50DMA.

Stocks whose valuation is more heavily weighted towards expectations for future earnings growth rather than current earnings (thus, these stocks have high price/earnings multiples), including many large-cap tech names, are more vulnerable to an increase in “opportunity cost” that a rise in bond yields represents. Some analysts said that downside in equities on Monday represents nerves ahead of the release of key US Consumer Price Inflation (CPI) data on Tuesday.

The median economist expectation is for the annual rate of headline CPI to reach 8.4% in March. This will not go down well at the Fed, and may encourage them to continue their recent shift in preference towards much more aggressive monetary tightening, a key worry for equity investors right now.

Elsewhere, China lockdown concerns are rising and this is triggering fears of longer-lasting global supply chain snags given China’s integral position as a major goods exporter/processor. Meanwhile, recent Russo-Ukraine updates are bleak, with Russia preparing to up the intensity of its assault in the eastern Donbas region, with no peace deal expected any time soon.

Another key risk this week is the unofficial start of the Q1 2022 earnings season. Big US banks start reporting results from Wednesday, and are expected to show a sharp slowdown in the YoY rate of earnings growth. Analysts caution that without any signs yet of slowing inflation, or peace in Europe, the prospect for major US indices to push back to recent late March highs and above looks slim.