US stocks declined on Monday as a sell-off in technology stocks resumed amid the threat of persistently high inflation. The S&P 500 plunged by more than 1%.
The losses were led by high-growth tech companies, including Amazon and Facebook. Meanwhile, vaccine manufacturers were also lower on Merck's announcement about an effective Covid-19 drug. Energy stocks were higher along with oil prices.
Global risk appetite has decreased amid a growing list of worries. Investors have been preparing for the US Federal Reserve to begin tapering as early as next month. Higher inflation and bond yields make the premium that investors pay for high-growth stocks less attractive.
"Technology stocks are most likely getting hit the hardest because higher interest rates mean higher discount rates for future earnings. I would expect this dynamic to continue as long as inflation expectations remain at the higher end," Brian Price, the head of investment management for Commonwealth Financial Network, said.
A surge in electricity and gas prices in Europe ahead of winter fuels energy crisis fears. This, in turn, also heightens inflation fears.
"The post-pandemic recovery appears to be stumbling. Supply shortages and a worsening energy crunch mean prices are rising and elevated inflation may not be as transitory as the Fed initially thought," Fiona Cincotta, senior financial markets analyst at City Index, said.
The US 10-year Treasury bond yield declined after rising by 1.5%, which led to a weaker greenback for the third day in a row.
Important events this week:
- RBA monetary policy decision on Tuesday
- New Zealand's interest rate decision on Wednesday
- RBI monetary policy decision on Friday
- US Nonfarm Payrolls and unemployment on Friday
- Nobel Prize announcements start on Monday
- Nobel Peace Prize awarded on Friday
