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UPDATE: Dow struggles as stock market attempts rebound following stimulus-inspired jump in consumer spending
Today 9:49 AM ET (MarketWatch)
By William Watts and Mark DeCambre

Treasury yields pull back as bond selloff takes a breather

Stocks on Friday were trying to find a bullish footing following a sharp selloff triggered by a rise in Treasury yields, which left the tech-heavy Nasdaq Composite on track for the worst weekly skid since October.

What are major indexes doing?

On Thursday (https://www.marketwatch.com/story/stock-futures-mixed-after-dow-returns-to-record-territory-11614256362?mod=market-snapshot), the Dow tumbled just shy of 560 points, or 1.8%, while the S&P 500 dropped 2.4%, leaving both indexes with the biggest one-day declines since late January. The Nasdaq Composite dropped 3.5%, for its biggest one-day drop since October.

For the week, the Dow was headed for a 0.3% loss, the S&P 500 was tracking a 2% decline while the Nasdaq Composite was off 5.4%. That would be the Nadaq's biggest slide since the week ended Oct. 30, according to FactSet data.

What's driving the market?

An acceleration in the Treasury market selloff Thursday sent yields, which move in the opposite direction of bond prices, up sharply, triggering a stock market selloff that hit tech-related stocks particularly hard.

"There was a flash spike in the 10-year yield and that upset the apple cart, as higher yields are spooking the stock market," said Ryan Detrick, chief market strategist at LPL Financial. "Could there be more inflation coming than what most think? Although the Fed isn't worried about that, the market might be."

Read: 3 reasons the rise in bond yields is gaining steam and rattling the stock market (https://www.marketwatch.com/story/3-reasons-the-rise-in-bond-yields-is-gaining-steam-and-rattling-the-stock-market-11614292476)

The yield on the 10-year Treasury note rose 13 basis points Thursday to finish at a more-than-one-year high at 1.51%. Yields pulled back Friday morning, with the 10-year rate down 4.7 basis points at 1.473%.

Rising yields can make bonds more attractive to investors relative to stocks, undercutting the longstanding "there-is-no-alternative" mantra that held that investors seeking yield had few other choices than equities due to ultralow rates on government securities. Shares of tech companies, which tend to be heavier borrowers and have seen the most stretched valuations, are seen as particularly vulnerable to a rise in yields.

Need to Know: So long, there-is-no-alternative trade. What now? (https://www.marketwatch.com/story/so-long-there-is-no-alternative-trade-what-now-11614339217?mod=home-page)

The move in rates had unsettled investors earlier in the week, but market participants were temporarily soothed by testimony from Federal Reserve Chairman Jerome Powell on Tuesday and Wednesday. Powell said the economy remained a long way from recovery and indicated the central bank was committed to waiting until inflation tops its 2% target before moving to begin easing up on its own stimulus efforts.

"Investors clearly have a hard time buying into the Fed speak insisting that it's too early to talk about tapering," said Han Tan, market analyst at FXTM, in a note.

Market participants "are of the opinion that improving U.S. economic conditions will cajole the central bank into tightening their policy settings sooner than expected. Fed funds futures are already pointing to an interest rate hike that's brought forward to the end of 2022, from 2024," Tan said.

On the fiscal policy front, the Senate parliamentarian on Thursday ruled against passing minimum-wage legislation through the budget-reconciliation process.

In economic reports, consumer data showed that Americans increased spending in January for the first time in three months after the government sent $600 stimulus checks to families and boosted unemployment benefits as part of effort to shore up the economy.

Consumer spending jumped 2.4%, the government said (https://www.marketwatch.com/story/stimulus-checks-spark-2-4-surge-in-consumer-spending-and-boost-economy-in-early-2021-11614347500?mod=home-page), marking the biggest increase since last June. Economists polled by Dow Jones and The Wall Street Journal has forecast a 2.5% increase. Incomes, meanwhile, rose by a much larger 10%.

A key measure of inflation, meanwhile, climbed 0.3% last month. The so-called PCE price index is the Federal Reserve's preferred measure of inflation.

Separately, trade data showed (https://www.marketwatch.com/story/u-s-trade-deficit-in-goods-in-widens-slightly-in-january-11614347138) that the U.S. trade deficit in goods widened to $83.7 billion in January from a revised $83.2 billion in the prior month, the Commerce Department said Friday. Imports of goods such as consumer electronics rose 1.1% to $218.9 billion in January. Goods imports were up 8.2% compared with a year earlier. Exports rose 1.4% to $135.2 billion. They are down 0.7% compared with one year ago.

Meanwhile, the Chicago-area purchasing managers index for February is set for release at 9:45 a.m. The University of Michigan's final read on its February consumer sentiment index is set for 10 a.m.