Before the bell: Defensive stocks take a hit

Investors expect long-term yields to rise further and are selling stocks. On Wall Street, Alphabet is poised for a rally after a judge ruled Google will not have to be broken up.

Investors sold aggressively yesterday, both in Europe and the U.S. The Euro Stoxx 50 closed 1.4% lower, while Frankfurt’s index fell 2.3%. In London, stocks lost 0.9%. On Wall Street, the losses were somewhat smaller, but the S&P 500 still dropped 0.7% and the Nasdaq fell 0.8%. What’s going on? Analysts point to rising long-term yields, which give investors an easy excuse to take profits. We saw the same in Brussels, where the Bel20 (-1.6%) fell sharply, with interest rate–sensitive REITs leading the declines: WDP (-3.6%), Aedifica (-3.2%), Montea (-3%), and Cofinimmo (-2.2%). Elia (-3%)—a stock typically considered “defensive”—was also hit, showing it’s not the place to be when rates creep higher. Yields aren’t spiking, but they are steadily climbing. And as governments keep spending, the supply of bonds will continue to rise without a matching increase in demand.

In Asia this morning, investors looked to the selloff in Europe and the U.S. Japan’s Topix slipped 0.9%, while losses in Hong Kong were limited to -0.4%. This morning, we’ll get eurozone services confidence data, while Belgian companies Home Invest Belgium and D’Ieteren report after the bell.

Stronger together

For years, some mega-corporations have been accused of being too big and too powerful, with calls for them to be broken up. Economist Geert Noels calls it “gigantism.” Microsoft has heard this criticism for decades, yet it has only grown more powerful and more valuable, now boasting a market value of nearly 4 trillion dollar. Others followed—Alphabet, for example, has long been targeted over its monopoly-like position. Regulators even suggested it should sell its Chrome browser, which would have generated huge cash bids. That looming forced sale had weighed on the stock. But last night, a U.S. federal court ruled against it. Investors cheered, sending Alphabet shares up 8% in after-hours trading. This morning, they are still up 7%. The non-breakup is clearly a positive for Alphabet. Apple shareholders are celebrating too: their company earns 20 billion dollar a year from Alphabet for promoting Google’s search engine on iPhones. And apparently, there’s nothing wrong with that.

Excuses, excuses

When people act—or fail to act—they often look for a reason or justification. We like to think we are rational beings. It feels weak to admit we simply followed others. We’re not herd animals, are we? Yesterday, the narrative was that investors sold stocks “because yields are rising.” Strange, in a month when the Federal Reserve is expected to cut rates for the first time since December 2024. “Yes, but long-term yields are climbing fast.” Not true. Yields are edging up, and they will rise further if governments don’t cut spending and central banks don’t resume large-scale bond purchases. But does that mean you should sell good stocks? And buy bonds? Bond prices will fall further if yields climb. And cash isn’t appealing either, given the risk of rekindled inflation. Today, it’s one excuse. Tomorrow, it will be another excuse to buy again. Humans are odd creatures. “You can’t make sense of them,” Flemish writer Gerard Walschap once said. He was right.

Did you know…

that on September 3, 1929, the Dow Jones reached a record high that would stand for 25 years? Soon after, on October 24, 28, and 29, the biggest crash in history followed, sparking a years-long recession. Investors who held onto their shares suffered losses. Or did they? The Dow Jones hit a record of 381.17 points on September 3, 1929. Today, it stands just a little higher—at 45,296 points.

This article was translated from Dutch and was originally published on Spaarvarkens.be.