Here’s why tech-heavy Nasdaq index fell yesterday

The rapid rise in the 10-year US Treasury yield, in spite of recent Federal Reserve claims that it does not plan on increasing interest rates in the near future, nor halt its bond-purchase program, has yielded a rotation lower in tech stocks. 

Fundamental analysis: Yields move higher

The 10-year US Treasury yield surged to as much as 1.75%, its highest point since January last year. Furthermore, the 30-year yield hit its highest mark since August 2019 today. The surge in rates in the last few months indicates higher optimism about the economic outlook, said Peter Kraus, chief executive of Aperture Investors.

The Fed’s 2-day policy meeting ended Wednesday, where the central bank raised its economic growth outlook compared to the last estimates, forecasting GDP to climb to 6.5% in 2021, up from the previously forecasted 4.2% GDP increase.

The bank added it believes core inflation will move to 2.2% in 2021 but expects it to revolve around 2% in the long-term. The Fed also said it does not intend to increase interest rates before 2023 and that it plans to maintain its bond-buying program of at least $120 billion a month.

Technical analysis: Nasdaq rotates lower

Nasdaq Composite Index fell over 3% yesterday to mark the worst day in the past 4 weeks. This way, the index swung into the red for the week as tech-heavy Nasdaq seems directly correlated with the benchmark 10-year yield. 

Earlier this month, a sharp selloff in Nasdaq yielded a correction of 12-13% that stopped at the 23.6% Fibonacci retracement of the coronavirus-related recovery in 2020. The next support is located around the 12000 mark, while the target for buyers is a new record high above 14600.

Summary

The Federal Reserve hiked its economic growth outlook, expecting GDP to rise to 6.5% this year and core inflation to 2.2% as it continues to downplay rising bond yields.