The Nasdaq slumped 2.70% overnight, driven by concerns over rising bond yields. The ASX 200 is looking to follow, with a weaker open expected.
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Increasing bond yields continue to be the talk of the town, raising concerns about stretched company valuations and higher interest rates. Overnight in the United States, selloff woes continued for tech and growth-related sectors, with the Nasdaq Composite (NASDAQ: .IXIC) falling by 2.70%.
What happened overnight?
Benchmark US government yields inched higher overnight to close at 1.47%. To add some perspective, yields have been continuously falling from 3% in late-2018 to as low as 0.50% in mid-2020. Record low-interest rates have aided in propping up equity markets globally. Near-zero interest rates have helped buoy the economy and business activity. However, the recent resurgence in bond yields has raised concerns over higher interest rates in the near-term.
Rising yields could translate into higher interest rates which, in turn, lead to higher borrowing costs. This could also result in a shift away from higher-risk investments such as shares and back to low-risk investments such as government bonds.
Nasdaq continues to underperform
Rising yields tend to stir up more trouble for richly valued shares. Meanwhile, value sectors including financials, real estate and commodities tend to perform better under a higher interest rate environment.
The tech-heavy index slumped 2.70% overnight, while the S&P 500 Index (SP: .INX) fell 1.31% and the Dow Jones Industrial Average Index (DJX: .DJI) fell only 0.39%.
A similar narrative played out last week when yields briefly touched 1.60% on Thursday. The Nasdaq finished last week down 4%, compared to the 1.70% and 1.85% respective falls from the S&P 500 and Dow Jones.
Tech shares experienced heavy selling across the board in the US overnight with big names such as Facebook Inc (NASDAQ: FB), Apple Inc (NASDAQ: AAPL), Amazon.com Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), Microsoft Corporation (NASDAQ: MSFT) and Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) all falling between 1.40% and 5%.
Other notable losers included a 12.50% fall from e-commerce marketplace Etsy Inc (NASDAQ: ETSY), a direct competitor of Redbubble Ltd (ASX: RBL), and a 6% decline from US-based buy now pay later provider Affirm Holdings Inc.
The ASX 200 is set to open lower on Thursday, but tech shares could be under even greater pressure given the falls in the Nasdaq overnight.
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