S&P 500 (SPY) Declines As Treasury Yields Test New Highs

Key Insights

• S&P 500 remains under pressure as tech stocks continue to move lower. 
• There is some demand in defensive segments, but this demand is not sufficient to push S&P 500 higher. 
• Traders should also monitor the developments in European government bond markets, which may have a material impact on the world economy. 

Rising Yields Put Pressure On Stocks

S&P 500 is losing ground today as tech stocks remain under strong pressure amid rising Treasury yields.

The yield of 10-year Treasuries moved towards multi-month highs at 3.35%, while the yield of 2-year Treasuries tested the 3.50% level. The inverted yield curve indicates that bond traders are worried about a potential recession.

It should be noted that there are strong moves in European government bond markets. UK bonds are testing new lows as traders fear that energy crisis will lead to additional money-printing. Germany’s bonds have also found themselves under significant pressure, and it looks that the ECB may be selling them to support bonds of weaker members like Italy or Greece.

While European bond yields have no direct impact on U.S. markets, a potential debt crisis in the EU and UK may serve as a significant negative catalyst for S&P 500. In this light, traders should monitor the developments in these bond markets in the upcoming weeks.

From a technical point of view, S&P 500 continues its attempts to settle below the 3915 level. A successful test of this level will signal that S&P 500 is ready to gain additional downside momentum.

Tech Stocks Stay Weak

Tech stocks continue to push the general market to lower levels. Apple, Microsoft, Alphabet, Amazon and other leading tech stocks remain under pressure.

Energy stocks like Exxon and Chevron have also pulled back today as WTI oil moved closer to multi-month lows.

Demand for stocks is concentrated in the safe-haven segment. Stocks like Eli Lilly, UnitedHealth Group, Johnson & Johnson enjoy some support today.

From a big picture point of view, it is obvious that S&P 500 will not be able to gain upside momentum without a material rebound in the tech stock segment.

For a look at all of today’s economic events, check out our economic calendar.