US tech stocks rallied on Wednesday as the White House released details of President Joe Biden’s next stage of his multitrillion-dollar fiscal stimulus plan that aims to boost funding for scientific research and broadband as well as infrastructure and healthcare.
The technology-focused Nasdaq Composite, which has underperformed this quarter as rising bond yields depressed valuations of growth companies’ shares, added 1.8 per cent in early dealings. The S&P 500 gained 0.6 per cent, with tech stocks rising to the top of the blue-chip index’s leaderboard.
A summary of the $2tn plan released ahead of Biden’s speech in Pittsburgh later on Wednesday pledged to “advance US leadership in critical technologies and upgrade America’s research infrastructure” as well as to address a “stark digital divide” and “build high-speed broadband infrastructure to reach 100 per cent coverage”.
But investors questioned how the plan would be funded and raised doubts on whether it would survive weeks of delicate negotiations with Republicans, seeing that Biden’s Democratic party holds razor-thin majorities in both chambers.
“The key question is how easily will this new plan be passed,” said Kevin Thozet, a member of the investment committee at French asset manager Carmignac.
Brian Gardner of Stifel said: “Although we think there is a reasonable chance that Congress will pass some form of the Biden plan, it will be tougher to pass this plan than it was to pass the Covid-relief bill.”
“Some divisions are already apparent among Democrats,” he pointed out.
The yield on the benchmark 10-year Treasury, which sets the tone for borrowing costs worldwide, was steady at slightly less than 1.72 per cent as investors awaited details on how the latest stimulus would be funded. This follows a quarter of heavy selling that sent its yield racing up from about 0.9 per cent at the start of the year.
“What we are all waiting to find out is how it will be paid for,” said Remi Olu-Pitan, multi-asset fund manager at Schroders.
A bias towards borrowing over taxation could cause further volatility in US bond markets, she added, in a trend shaking up the traditional use of Treasuries as low-risk assets that cushion investment portfolios from stock market shocks.
“Government bonds have moved from being the risk-free and stable return asset to one that is return-free and risky,” she said. “With fiscal stimulus being used increasingly to heal the effects of the pandemic, I think this could be the theme for the next decade.”
The move in Treasury yields since the start of this year, as investors anticipated higher inflation as well as extra state borrowing, marks one of the most brutal sell-offs in US government bonds during the 21st century. The 10-year yield climbed 0.85 percentage points in the final three months of 2016, when Donald Trump won the US presidential election. It also rose 0.87 percentage points in the second quarter of 2009, strategists at Deutsche Bank calculated.
In Europe, the Stoxx 600 index equity traded flat, close to its highest level since the start of the pandemic. The region-wide benchmark has risen almost 8 per cent this quarter, pushed higher by banks and industrial businesses that will benefit from a global economic recovery. The UK’s FTSE 100 fell 0.1 per cent.
In currencies, the dollar was little changed against a basket of its peers, remaining near its highest since November. The euro added 0.2 per cent to purchase $1.17 and sterling gained 0.3 per cent at $1.378.