Persistent weakness in technology stocks led the major indexes lower on Monday after last week's hotter-than-expected inflation readings sparked a downturn in equity markets.
Big Tech came under pressure to start the week, with Apple and Netflix each down 0.9%. Microsoft shed 1.2%, while Tesla dropped more than 2% as famed investor Michael Burry revealed a big short position on the electric carmaker. Traders have punished the technology sector in recent weeks amid a broader shift out of growth stocks and into cyclical, reopening trades in energy, financials and materials.
"Investors should brace for further bouts of volatility, driven by inflation data along with other risks, such as setbacks in curbing the pandemic," said Mark Haefele, UBS' chief investment officer. "But we don't see inflation concerns ending the rally in stocks, which we expect to be led by cyclical parts of the market as the global economic reopening broadens."
Communication services stock Discovery bucked that trend, up big after AT&T announced Monday that it would merge WarnerMedia, which includes HBO, with Discovery. The new entity will trade as its own public company. Discovery's Class B stock jumped nearly 14%, while AT&T ended the day slightly lower after hitting a record high earlier in the session.
Wall Street came off one of the wildest weeks of 2021 that saw the S&P 500 fall 4% through midweek amid heightened inflation fears. The broad equity benchmark eventually rebounded and ended the week down just 1.4%.
The tech-heavy Nasdaq Composite, which got hit particularly hard by inflation fears, dropped 2.3% last week. The blue-chip Dow fell 1.1% in that period. All three benchmarks posted their worst week since February 26.
"Not only are [last] week's events a warning sign of how uncomfortable inflation prints can become but also a warning sign of how overbought equity markets have become," Nikolaos Panigirtzoglou, a managing director at JPMorgan, said in a note.
Data last week showed the Consumer Price Index jumped 4.2% from a year earlier in April, the fastest rate since 2008, which intensified fears that the Federal Reserve could be forced to start tapering its easy monetary policy if higher price pressures are sustained.
The Fed's minutes from its last meeting, which will be released Wednesday, could offer some clues on policymakers' thinking on inflation.
Bitcoin was taken for a wild ride overnight Sunday. Earlier, the price tumbled below $43,000 after Elon Musk implied in a Twitter exchange that Tesla may have dumped its bitcoin holdings. Last week, Tesla said it would no longer accept bitcoin for car purchases due to environmental concerns.
Bitcoin then rebounded some after Musk later clarified in a tweet that the electric vehicle maker "has not sold any Bitcoin." The price was last at $44,220.
Elsewhere, the first-quarter earnings season is wrapping up with more than 90% of the S&P 500 companies having reported their results. So far, 86% of S&P 500 companies have reported a positive EPS surprise, which would mark the highest percentage of positive earnings surprises since 2008 when FactSet began tracking this metric.
Walmart, Home Depot and Macy's will deliver earnings on Tuesday.
"Investor and equity analyst reactions to earnings results reveal skepticism that 1Q beats provide a reason for additional forward-looking optimism," wrote David Kostin, Goldman Sachs' chief U.S. equity strategist. "Firms that beat EPS estimates typically outperform the S&P 500 by 100 [basis points] the day after reporting. However, the typical stock that beat on EPS this quarter outperformed by just 51 [basis points], continuing the trend from 2020."
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