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Investing.com – The Dow hit record highs on Friday, as rising cyclical stocks offset renewed selling in high-valued tech stocks after U.S. rates climbed to a more than one-year high.
The Dow Jones Industrial Average rose 0.87%, or 281.58 points, and had hit intraday record of 32,772.54, and the S&P 500 rose 0.09%, and the Nasdaq Composite was down 0.62%.
The 10-year U.S. Treasury yield jumped to a more than one-year high of 1.642% on bets that for a faster pace of inflation as the economy is expected to stage a stronger recovery thanks to another round of stimulus.
“The continuation of massive funding will lead to rising inflationary implications in the longer-run as the economy – eventually – attempts to grow organic legs,” Stifel said in a note. The uptick in inflation through the summer months will ultimately prove modest, reinforcing the “Fed’s nonchalant approach to rising inflation expectations or a backup in rates,” it added.
The rise in rates, however, forced investors to abandon long-duration tech stocks, which have strong long-term growth prospects but are yet not cash flow positive.
Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google-parent Alphabet (NASDAQ:GOOGL) were in the red.
Apple was also under pressure on signs of weak iPhone demand. iPhone shipments in February were down 14% according to Morgan Stanley (NYSE:MS), citing data from the China Academy of Information and Communications Technology. “This is consistent with our view that lengthening replacement cycles are likely to drive lower and lower demand peaks in iPhone redesign years,” Morgan Stanley said.
Sentiment on tech was also soured by a sea of red across Chinese tech stocks on fears of a regulatory crackdown on the sector. Alibaba (NYSE:BABA) fell more than 3% after The Wall Street Journal reported that China’s antitrust regulators are weighing up a record fine for the e-commerce giant.
Cyclicals, meanwhile, continued to ride the wave of economic optimism, led by gains in financials and industrials. Some on Wall Street suggest that cyclicals will remain in favor as long as rates continue to climb. “Short duration is likely to outperform long duration if interest rates rise towards our rates strategists’ targets in 2Q 2021, Goldman Sachs (NYSE:GS) said, forecasting an additional 25 basis points of upside to the 10-year U.S. Treasury yield by 2Q 2021.
In other news, AMC Entertainment (NYSE:AMC) rallied after L.A. County said that Los Angeles will be lowering restrictions to the second tier of California’s Covid-19 reopening system, paving the way for movie theatres to reopen.
