The New Market Next Exit

Investors are struggling to work out what a recovery from the pandemic means

- Michael P. Regan and Liz Capo McCormick, with Claire Ballentine

Before we talk about what’s going on in the stock market—and why it’s whipsawed so many investors even though the S&P 500 index is near a record high— we have to talk about bonds.

U.S. Treasuries are probably the world’s most important financial market, but it’s easy to forget about them when they’re well-behaved. When prices suddenly drop, which causes their yields to rise, for many professional investors it can seem like Godzilla poking his head above water off the coastline: Time to run and hide—trouble may becoming.

The yield on the benchmark 10-year Treasury climbed this month to as high as 1.62%, up from less than 1% at the start of the year. That’s still very low by historical standards, but it was high enough to spread pain in the most popular and rewarding parts of the stock market. The Nasdaq 100 Index, which is dominated by the likes of Amazon.com, Apple, and Microsoft, fell as much as 11% from Feb. 12 before rebounding in recent days as the bond market sell-off subsided. Cathie Wood’s ARK Innovation ETF, which surged 153% last year and attracted more than $15 billion in cash in 14 months, plunged almost 30% and then climbed back part of the way. Likewise, Tesla tumbled and so did special purpose acquisition companies.