Rising bond yields curbed traders’ appetite for risky bets early Friday, sending stocks lower following a weeks-long record-setting rally driven by a rush of cash into all things artificial intelligence.
Contracts on the S&P 500 Index slid 1.1% as of 8:24 a.m. in New York, while those on the Nasdaq 100 Index sank 1.6%. Investors around the globe offloaded government bonds, sending borrowing costs higher from Japan to the US after a series of hot inflation prints stoked concern about the prospect of central banks having to raise interest rates this year. The yield on 10-year Treasuries climbed seven basis points to 4.55%.
“This week’s inflation numbers and the renewed rise in crude oil is raising fears about inflation,” said Matt Maley, chief market strategist at Miller Tabak + Co. “With long-term yields hitting 12-month highs, it’s causing investors to take some chips off the table in the stock market after the enormous six week run.”
The stock market is primed for profit-taking in early June due to investors crowding into equities and rising inflation risks, according to Bank of America Corp. strategists led by Michael Hartnett. Growing price pressures are beginning to permeate the US economy at a time when the market is soaring to fresh record highs, he said in a note to clients.
“Bull capitulation into stocks and tech likely fully complete in next few weeks, early June ripe for taking some off table,” Hartnett wrote.
The selloff is compounding an already difficult environment for stock pickers. Active managers who briefly looked like they might finally have their moment earlier this year are once again confronting a familiar problem: a market rally driven by a tiny group of tech megacaps that diversified portfolios simply can’t keep up with.
The share of mutual funds outperforming the S&P 500 this year has plunged to just 28%, according to the latest data from Barclays Plc, down from over 60% at the end of February. After benefiting from a rotation out of high-flying technology shares and into the broader market, stock pickers are getting left behind as money floods back into a narrow group of AI-fueled heavyweights.
The reversal has been so sharp that active managers are now headed for their fourth-worst showing in the last 20 years relative to the benchmark, the data show. That’s an ominous turn for an industry already on the defensive after investors yanked roughly $1 trillion from active equity mutual funds last year alone.
On the geopolitical front, US President Donald Trump said he didn’t discuss a possible extension of his tariff truce when he met with Chinese leader Xi Jinping during a summit in China.
In individual company news, Pershing Square Chief Executive Officer Bill Ackman said he’s taken a new stake in Microsoft Corp. after shares declined, saying investors have underestimated the durability of the company’s software. Meantime, China agreed to buy 200 Boeing Co. planes, President Trump said, falling short of the 500 737 Max and additional widebody aircraft Chinese airlines were expected to buy.
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