The Dow and the S&P 500 Eked Out Gains Today. Bond Yields Stopped

The indexes were higher earlier on in the day, before market participants sold stocks in the last hour of trading.

The broad decline in stocks Tuesday came as bond yields surged, which put particular pressure on shares in tech companies. Elevated yields make future profits less valuable, putting a particularly large dent into high-growth companies like technology groups, which are forecasted to see big profits many years into the future.

Yields began racing higher just after the Fed largely confirmed it soon will begin the tapering, or reducing its bond-buying program. Less money moving into the bond market could lower bond prices and raise their yields.

On Wednesday, the yield on the benchmark 10-year U.S. Treasury note initially fell to as low as 1.5% from Tuesday’s 1.54%. It then rose back to 1.53%, though it didn’t surge as it had been in the past several trading days.

Although bond yields have stopped their rapid surge for the moment, the tech-heavy Nasdaq still underperformed the other two major U.S. benchmarks. One reason is because, overall, the 10-year yield is likely heading upwards, many on Wall Street agree.

“Yields are off the morning lows,” said Frank Cappelleri, chief market technician at Instinet. That helps to “put the brakes on the desire to buy tech right now.”

The short-term outlook for tech stocks likely includes some pain, as bond yields potentially head higher from here.  “We expected an adjustment process as rates moved higher… with growth and long-duration issues [stocks] leading the charge,” writes Christopher Harvey, chief U.S. equity strategist at Wells Fargo. “We wrote last week to expect 1-2 weeks of sloppiness.”

If the 10-year yield rises above 1.62%, the next stop is likely 1.7%, writes NatAlliance Securities’ Andrew Brenner. 

Should there be more pain ahead for the S&P 500, Harvey recommends buying the dip when and if the index falls to its 100-day moving average, where buyers have tended to step in recently. 

Rising bond yields also reflect that markets see strong inflation and economic demand in the long-term. That’s another reason the Dow — comprised heavily of economically sensitive stocks — was the best performing major U.S. index on the day.

An additional shot in the arm for the more cyclical stocks: pending home sales increased 8.1% month-over-month in August, better than the expected 1.4%. This came as inventory rose and prices moderated, according to the National Association of Realtors. That’s a welcome site for…