S&P 500, NASDAQ Composite Dragged Lower by Rising Yields, Tesla Plunge

The U.S. stock market ended the first day of the last week of the year on a down note as higher Treasury yields weighed on interest rate sensitive megacap shares. The selling pressure was especially felt by the benchmark S&P 500 Index and the technology-weighted NASDAQ Composite due to their exposure to high-flying growth stocks.

On Tuesday, the S&P 500 Index settled at 3829.25, down 15.57 or -0.40%. The NASDAQ Composite Index finished at 10353.23, down 144.64 or -1.38% and the Dow Jones Industrial Average finished at 33241.56, +37.63 or +0.11%.

These results were the result of growth stocks dragging down both the S&P 500 and NASDAQ, while value stocks underpinned the Dow.

Higher Treasury yields were the catalysts driving the weakness in growth stocks. Meanwhile a weaker dollar drove commodities higher, underpinning industrials, utilities and energy. These value stocks helped the Dow outperform the riskier stocks in the S&P 500 and NASDAQ Composite.

The Internals

Of the 11 major sectors in the S&P 500, six ended the session red, with consumer discretionary and communication services suffering the steepest percentage loss, according to Reuters.

Declining issues outnumbered advancing ones on the NYSE by a 1.18-to-1 ratio; on NASDAQ, a 1.93-to-1 ratio favored decliners.

The S&P 500 posted 9 new 52-week highs and 3 new lows; the NASDAQ Composite recorded 96 new highs and 448 new lows.

Volume on U.S. exchanges was 8.35 billion shares. This compares with the 11.35 billion average for the full session over the last 20 trading days, Reuters reported.

S&P 500 Index Pressured by Southwest Airlines

Shares of Southwest Airlines Co tumbled after harsh weather forced the discount commercial carrier to lead its peers in cancellations. The broader S&P 1500 Airlines Index also ended the session in the red, Reuters reported.

Additionally, the company came under fire from the U.S. government after the low-cost carrier kept canceling flights due to the harsh winter weather that grounded planes and disrupted holiday travel.

U.S. airlines have canceled thousands of flights as an arctic blast and a massive storm swept over much of the country before the Christmas holiday weekend.

U.S. President Joe Biden said his administration was working to ensure airlines were “held accountable,” according to a tweet on his official POTUS handle.

Tumbling Tesla Weighs on NASDAQ Composite

Shares of Tesla Inc tumbled 11.4%, and the electric car maker was the heaviest drag on both the S&P and NASDAQ after a review by Reuters of an internal schedule revealed the company plans to scale back production at its Shanghai plant.

Tesla shares have fallen 73% from their record high in November 2021. The stock is down 69% in 2022, more than double the decline in the NASDAQ. Since its IPO in 2010, Tesla has only fallen in one other year, an 11% drop in 2016.

Short-Term Outlook

We’re looking for another low volume session on Wednesday with volume gradually selling off into Friday, ahead of the long New Year’s weekend.

Investors are likely to be focusing on Treasury yields once again. Higher yields should keep the pressure on higher risk, higher-growth stocks – or the S&P tech sector and NASDAQ Composite. Meanwhile, we could continue to see buyers attracted to value stocks especially if the dollar weakens. This would benefit the Dow.

For a look at all of today’s economic events, check out our economic calendar.