Stocks ended Monday's session mixed while commodity prices rallied, as rising Treasury yields and expectations of higher inflation weighed on equity prices. Tech shares sold off, and the Nasdaq posted its biggest drop in a month. The S&P 500 posted a fifth straight day of losses, for its longest losing streak since February 2020. The Nasdaq sharply underperformed, dropping more than 2% as tech shares came under more pressure. The Dow pared earlier losses, however, and rose slightly. Stifel Chief Economist Lindsey Piegza and John Hancock Investment Management Co-Chief Investment Strategist, Matt Miskin, joined Yahoo Finance Live to discuss.

Video Transcript

SEANA SMITH: Just around 2 and 1/2 minutes until the closing bell. We want to bring in Lindsey Piegza, Stifel's chief economist. We're also joined by Matt Miskin, John Hancock Investment Management co-chief investment strategist. Matt, first to you, just some of the rotation that we're seeing play out today-- big tech under pressure, a rotation into some of these cyclical trades. What do you make of that?

MATT MISKIN: Yeah, it's all tied to higher bond yields. And bond yields are rising as commodity prices come up. And that's causing ripple effects across market. So technology is a longer duration part of the market because of the terminal value of those businesses. As you raise the discount rate, that brings down the net present value. And really, if you think about the overall market, a lot of the thesis on the valuation of this market was, well, bonds are so low, you got to buy stocks. Well, bond yields come up, it changes that formula. And I think that's why there's some profit taking today.

ADAM SHAPIRO: All right, Matt and Lindsey, hold it right there because as those yields go up, the tide goes down, and we see who is swimming without shorts. Jared Blikre, we're not quite there yet in the market, but what are they telling us as we head to the closing bell?

JARED BLIKRE: Well, I've got a tale of two markets here. And a picture is worth 2,000 words, and I got two of them. First, check out the airline sector here on the YFi Interactive. You can see American Airlines, which we've been tracking on all day, up 9%, United up 3%. Then you take a look at the NASDAQ 100, the big cap names just really taking it here. If you take a look at Tesla, that reached down to 711 and change the last I checked. Over the last five days, it's down 12%.

Not a disaster, but we are seeing profit taking, or maybe just outright selling, in a lot of these names that have been previous high flyers. You take a look at Peloton. That's down 10%. That's down 18% over the last five days. So these are some moves that we're going to want to track going forward.

Now, in the sector action today, it's a clear divide between the value and cyclical stocks on the one hand, and the tech and discretionary stocks, at least some of the other big ones, like Amazon, to the downside. You can see tech and discretionary each off 2% in the lower right. To the bright side-- or to the upside, energy is up 3 and 1/2%, followed by financials and real estate.

Here's a quick picture of that bank-- of this banking-- excuse me, the banking heat map here. JP Morgan hit a record high. It is set for a record closing high as well. And also, check out Bitcoin into the close-- rough day there.

[BELL]

ADAM SHAPIRO: Rough day perhaps, but we live to fight another day at the closing bell. Let's see where we're going to settle. The S&P 500 is going to be down. It will be off roughly 30 points. The Dow is going to settle higher, up about 29 points. NASDAQ is going to settle down-- are you ready for this? The NASDAQ was off more than 2 and 1/2-- almost 2 and 1/2%, down 341 points.

In the sectors, as Jared was just saying, energy still on a tear. Energy now up about 3.6%, that sector, and for the last 52 weeks, it is closing the gap in its losses. It's down in the last 52 weeks 15%. But at the beginning of the year, that figure was about 21%.

So let's go back to our guests and talk about where these markets are headed. I want to bring in Lindsey Piegza. And I want to get back to this discussion Matt hit on, on what's happening with the Treasury yields. For most of us, we're at least 10 years plus out in thinking about rotating retirement estimates. Why do you care if the 10-year is at 1.4%?

LINDSEY PIEGZA: Well, I think it represents the fact that investors are beginning to imagine an economy post-virus, but they're also beginning to see the potential realistic consequences from unchecked government spending, leading to massive deficits and debt that could potentially curtail some of the more organic growth that we would expect as we begin to emerge from this pandemic. So I do think that rising bond yields is really a signal that perhaps expectations for this upward momentous trajectory to the upside is going to be met with potentially more of a W- or more of a K-shaped recovery that will take years to get us back to these pre-pandemic levels of growth and inflation.

SEANA SMITH: So Lindsey, if it's going to take us years to get back to those pre-pandemic levels, what does the economy need right now? We have negotiations underway for that $1.9 trillion stimulus package. Is that too much? Is it not enough? What do you think?

LINDSEY PIEGZA: The problem is, this wasn't a market crisis. This was a health crisis. So the best way to get the economy back on track is to allow the economy to reopen as much as possible, if not fully, but safely. So when we talk about an additional $1.9 trillion on top of the trillions already spent, while we may see some sort of near-term boost from those dollars being spent, although a good portion of them are likely to be saved or invested, the long-term consequences, I fear, will outweigh the short-term benefit.

And so, when we do look out, to the earlier question, five, 10 years down the investment line, I do think that this massive government expansion of the balance sheet is going to create potentially insurmountable barriers to growth and could create very rapid inflation down the line. Now near-term, we're not expecting that bump up in prices. But when we look at medium to long-term, massive spending, trillions upon trillions of dollars is likely to have significant inflationary implications.

ADAM SHAPIRO: So, Matt, when we consider that as investors, that's not going to happen today or tomorrow. But the Fed's been signaling 2024. And Matt, I'm curious-- you think maybe what the bond market is telling equity investors is, don't get caught surprised if it comes much earlier. How earlier the rate increase?

MATT MISKIN: Yeah, so the bond market is now saying 2022. The end of 2022 is going to be the first rate hike. The Fed is saying 2024. So that is a big discrepancy. And the bond market and the Fed are, in essence, playing chicken right now, where they are both trying to kind of say what their view is of rates are going to be going forward, and the bond market's winning. So the bond market with the steepness of this curve, with the 10-year rising, the 30-year rising, it's pricing in more tightness in the system.

And the Fed I think is really going to be in a tough spot here. They've been calling for fiscal stimulus for a better part of a year. And they're getting it. But they're getting it in a big way. And I think that's what's shocking the bond market a bit. And so they are going to either need to monetize that debt, find-- use yield curve control, do more QE, or they're going to have to have the side effects, the negative impacts of Treasury yields rising.

Mortgage rates are on the 30-year-- our 30-year mortgage rates are up today. They're rising. That's going to hurt housing. And that can have ripple effects across the economy. So it is something to bear in mind as an investor because things have been great, but as yields rise, it could add some volatility here.

SEANA SMITH: Let's stick with the bond market because it certainly is driving a lot of today's action. We want to get to Jared Blikre with his final thought. Jared.

JARED BLIKRE: Yeah, it's been all about the bonds. And you talk about volatility. Well, the Move index, which is kind of the VIX of the bond market, that's been on the rise, too. And typically, that doesn't happen when the Fed is still printing money, expanding its balance sheet. So a little bit of a contradiction there we're going to watch-- want to watch.

Now this is a 10-year T-note yield at one-year highs here, 1.37%. I guess my big take is, guess what? There is an alternative. So forget TINA. Now we have the bond market. And as bond yields rise, there are going to be periodic moments where we attract, in the US, foreign capital, the dollar strengthens. And it kind of creates a risk moment-- risk off moment for equities.

But you think about the incredible tailwinds from monetary and fiscal policy that we have before us, along with a new administration, everything's setting the stage for a nice run into the back half of the year, as I keep saying. But you've got to watch that inflation, guys, because we're spending a lot of money here, aren't we?

SEANA SMITH: Certainly are spending a lot of money. We're going to talk a little bit more about that with Jessica Smith. But Jared Blikre, our thanks to you, and also thanks to Lindsey Piegza, Stifels chief economist, and Matt Miskin, John Hancock Investment Management co-chief investment strategist.