The Nasdaq 100 dropped over 2% on Tuesday amid an ongoing surge in Treasury yields.
Interest rates are surging amid an ongoing rise in inflation, and that's fueling a rotation out of high-growth tech stocks and into more cyclical stocks in the financials and energy sectors.
According to technical analyst Katie Stockton of Fairlead Strategies, the rise in interest rates could continue if the 10-year Treasury yield clears resistance at 1.53%, with an upside target to the year-to-date high of 1.77%.
High-growth stocks tend to underperform when Treasury yields are rising, typically felt the most by the technology sector which is the most overbought in relative terms.
Helping drive the surge in interest rates this week was a warning from Fed Chairman Jerome Powell that the factors driving inflation higher could last longer than expected, including global supply chain disruptions and a tight labor market. Rising inflation would be a driver in the Fed's decision to taper asset purchases and raise interest rates to combat rising prices.
Uncertainty about the upcoming debt ceiling increase could also be driving interest rates higher. Treasury Secretary Janet Yellen testified to Congress on Tuesday that if the US debt ceiling isn't raised before the Treasury runs out of money, which is estimated to be around October 16, interest rates could spike higher as investors around the world lose faith in America's ability to pay its obligations.