S&P 500 gives up gains and turns negative, high-flying tech gets hit

The S&P 500 cut earlier gains on Friday pressured by the sell-off in high-flying tech names, while a stronger-than-expected jobs report helped support sentiment.

The broad equity benchmark traded near the flatline after gaining more than 1% earlier. The tech-heavy Nasdaq Composite fell 1.4% in the volatile session. The Dow Jones Industrial Average rose just 80 points after climbing more than 300 points at its session high.

The Labor Department on Friday reported that nonfarm payrolls jumped by 379,000 for the month and the unemployment rate fell to 6.2%. That compared to expectations of 210,000 new jobs and the unemployment rate to hold steady from the 6.3% rate in January, according to Dow Jones.

The U.S. 10-year Treasury yield popped above 1.6% to hit a 2021 high after the February jobs report. As rates jumped, tech shares with high valuations got hit again, continuing the pattern this week. Tesla fell about 7.6% and Peloton shares fell more than 8%. Higher rates decrease the present value of future cash flows.

Stocks that would benefit from a rapid economic comeback gained in the wake of the jobs report. The S&P 500 energy sector rose more than 2% as Occidental Petroleum gained nearly 6%. Banks and many retailers jumped.

“This was a welcomed change of events for a suppressed labor market as we begin to turn the helm on a restrained economy and open back up,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “It appears the ship is pointed in the right direction and the additional stimulus coming from Congress should be the wind in the sails to get the economy back on track.”

Friday’s moves followed a steep sell-off on Thursday triggered by Federal Reserve Chair Jerome Powell’s remarks on rising bond yields. The Fed chair said the recent runup caught his attention but he didn’t give any indication of how the central bank would rein it in. Some investors had expected Powell to signal his willingness to adjust the Fed’s asset purchase program.

The economic reopening could “create some upward pressure on prices,” Powell said in a Wall Street Journal webinar Thursday. Even if the economy sees “transitory increases in inflation … I expect that we will be patient,” he added.

“Equity investors, in our conversations, are really grappling with two things they may not have had to deal with for the last 10 years,” said Tom Lee, Fundstrat’s co-founder head of research. “One is the potential for inflation to actually have to be priced into equities. I think there’s a lot of confusion.”

“Then it’s a bond market that seems to be testing the Fed, which kind of scares people,” added Lee, who believes the sell-off this week is a buying opportunity.

Tech stocks have led the market decline this week, especially those with lofty valuations and small or no profitability. The Nasdaq Composite has dropped nearly 5% this week, while the tech-heavy benchmark also turned negative for the year and fell into correction territory, or down 10% from a recent high, on an intraday basis.

“Rates soared once again, which opened the door for more selling of technology stocks,” said Ryan Detrick, chief market strategist at LPL Financial. “The bright side is the economy continues to improve and leadership from financials and energy is something that suggests this isn’t a sell everything moment.”

— CNBC’s Maggie Fitzgerald contributed reporting