On Monday, U.S. markets experienced a mixed day of trading with the Dow Jones Industrial Average climbing, while the tech-heavy Nasdaq Composite faced declinesThe driving force behind this divergence stemmed from investors continuing to sell off major tech stocks, resulting in a 358.67 point rise for the Dow, which settled at 42,297.12, reflecting an increase of 0.86%. Meanwhile, the Nasdaq Composite index dipped by 0.38% to close at 19,088.10. The S&P 500 also saw a slight uptick of 0.16%, concluding the day at 5,836.22. Over the preceding fortnight, all three major benchmarks in the U.S. had witnessed downward trends, with technology stocks bearing the brunt of losses.

The two prominent indices that had been favored by retail investors, Palantir and Nvidia, faced significant declines, losing over 3% and nearly 2% respectivelyNvidia had already seen a steep drop of nearly 6% in the previous week, while Palantir plummeted more than 15%. Other well-known technology stocks, including Apple and Micron, also encountered selling pressure during the trading day.

While tech stocks grappled with declines, the energy sector stood out, supported by a rise in oil pricesThis sector surged over 2%, outperforming the market overallAdditionally, healthcare and materials sectors posted gains, indicating a broader sentiment shift among investors toward more stable stocks in the face of turbulent tech markets.

A sharp uptick in bond yields was a critical catalyst for the sell-off seen in growth-oriented stocksOn Monday, yields on the 10-year U.STreasury note hit their highest point since November 2023, closing at 4.78%. Typically, there exists an inverse relationship between bond yields and the equities marketAs yields rise, investors tend to shift their capital into the bond market due to the perceived security bonds offerHigher yields make bonds more appealing to risk-averse funds looking for steady returns, leading to an outflow of capital from equities, especially growth stocks whose valuations are contingent on anticipated future cash flows

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A rise in interest rates diminishes the present value of these expected cash inflows, eroding the attractiveness of growth stock investments.

Last Friday’s unexpected jobs report from the U.S. sparked doubts about whether the Federal Reserve will consider any further interest rate cuts in the near futureThe robust employment market serves as an indicator of economic health, which may reduce the Fed's urgency in employing rate cuts as an economic stimulus toolConsequently, market expectations for interest rates have been rising, thus intensifying pressure on stock markets, with tech growth stocks being particularly affected.

Adam Turnquist, the Chief Technical Strategist at LPL Financial, remarked, “With the 10-year Treasury yield potentially reaching 5%, I believe that the stock market will struggle to gain any meaningful traction until rates stabilize at a minimum.” He further added that while they do not foresee a bear market, short-term corrections are inevitable.

According to a report from Barclays, the sharp rise in U.STreasury yields might postpone any potential rebound for small-cap stocksMatthew Joyce, a strategist based in Paris, adjusted their outlook on small-cap stocks from bullish to neutral, reflecting the rising yields' effect. “Last month, our small-cap basket rose about 0.5% relative to the market, but thus far, small caps have been adversely impacted by the surge in yieldsWe still believe they are attractive, as they are undervalued by about 20% relative to the marketHowever, given the risks of continued rising yields and a waiting period for clear economic activity data to rebound, we believe it is prudent to downgrade the small-cap rating while we observe how these two factors unfold,” remarked Joyce in their analysis.

Investors are hopeful that the onset of the fourth-quarter earnings season will bring some stability to the marketsMajor financial institutions such as Citigroup, Goldman Sachs, and JPMorgan Chase are set to release their earnings results on Wednesday, followed by Morgan Stanley and Bank of America on Thursday

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