Market snapshot: Dow rebounds, Nasdaq falls as larger bond yields weigh on tech shares

Stock market benchmarks were mostly lower on Monday, although the Dow Jones Industrials benchmark shook off worries that rising bond yields could make stocks, especially soaring tech stocks, too expensive.

What do major indices do?

The Dow Jones industrial average
+ 0.42%
rose 143 points, or 0.5%, to 31,637 after trading just 31,287.

The S&P 500
was 6 points or 0.2% at 3,901.

The Nasdaq Composite
slipped 184 points, or 1.3%, to 13,690.

Stocks had mixed performance with the Dow last week
+ 0.42%
0.1% increase during the S&P 500
posted a 0.7% decline and the tech-heavy Nasdaq Composite
shed 1.7%.

What is driving the market?

Long-term government bond yields rose again on Monday after posting their largest surge in six weeks last week, hurting bull excitement.

Higher "risk-free" returns can make it difficult to justify high valuations for stocks as they reduce the value of their future earnings to investors. Against the backdrop of rising interest rates and faster economic growth, technology companies with rapidly increasing earnings are becoming less attractive to investors.

"In any case, returns are the big deal," Randy Frederick, vice president of trade and derivatives at the Schwab Center for Financial Research, told MarketWatch, adding that investors have also been at the risk of a "big spike" in recent weeks Were concerned about inflation.

Although Frederick agrees that such fears are somewhat exaggerated, like the recent GameStop Corp.
+ 10.74%,
It has been suggested that vulnerable stock benchmarks trading near all-time highs remain sold out for a year into the pandemic due to unexpected news or even severe weather. "If you're a little off record highs, fears of inflation or a storm could cause a retreat," he said.

James Meyer, chief investment officer at Tower Bridge Advisors, indicated that markets "may enter a phase where rate hikes are becoming the main focus of investors," he said. "So far, the growth spurt has dominated the share price movement."

Returns were bolstered by the expectation that aggressive rounds of budget spending, in addition to the extremely loose monetary policy of the Federal Reserve, will fuel short-term inflationary pressures. In the meantime, stocks are near all-time highs and remain expensive when measured against a variety of valuation metrics.

Congress is expected to pass another round of aid spending near President Joe Biden's $ 1.9 trillion package. Investors have also considered the option of a large, long-term round of infrastructure spending.

The introduction of vaccines and falling COVID-19 case numbers continued to raise hopes of an acceleration in economic activity this year, even though the US death toll approaches a milestone of 500,000.

Read: Stock market investors are already counting on an infrastructure buying frenzy

See: 7 reasons stocks are a buy, even if bond yields are rising, says the strategist

Rising yields and concerns about inflation also underscored concerns about a possible hawkish turn by the Federal Reserve, although the central bank has pledged to hold back until inflation goes above its 2% target.

"The difficulty for equity investors is that the further the Fed falls short of market forecasts for both GDP and interest rates, the greater the worry about a tantrum," said Sean Darby, global strategy director at Jefferies, of market participants a possible tightening of the Fed in a note.

The Fed's deliberate efforts to displace market expectations by exceeding its 2% target should allow further steepness in the yield curve while real or inflation-adjusted interest rates remain negative and allow cyclicals and companies with low variable costs to outperform, he said.

Energy stocks, one of the most battered sectors on Wall Street, saw strong gains on Monday. The energy constituents of the S&P 500 rose 4.6% to rebound to their February highs Marathon Oil Corporation
+ 11.38%,
that was an increase of 9.5%.

Fed chairman Jerome Powell will testify to Congress on monetary policy this week.

The leading indicators for the economy rose 0.5 points in January to 110.3. Economists had expected the index to rise 0.4 points.

Which companies are in focus?

Stocks of the Dow component Boeing Co.
rose by 0.3% United Airlines Holdings Inc.
+ 6.62%
said it is temporarily decommissioning Boeing 777 aircraft after an engine blown apart in flight over the weekend. Boeing recommended that aircraft with this model engine be grounded. Shares of Raytheon Technologies Corp.
Pratt & Whitney's parent company, which made the engine, was down 0.3%, while United stock was up 7%.

Shares of Kohl’s Corp.
+ 7.93%
jumped 9% after the Wall Street Journal reported that a group of activist investors took a large stake in the retailer to take control of its board.

Goodyear Tire & Rubber Co.
+ 19.61%
said Monday would acquire it Cooper Tire & Rubber Co.
+ 30.07%
in a business valued at approximately $ 2.5 billion. Cooper shares were up 30% while Goodyear shares were up 20%.

Based in New York M&T Bank Corp.
+ 3.14%
announced Monday that it had reached an agreement to buy Connecticut People & # 39; s United Financial Inc.
+ 14.76%
in an all-stock deal valued at $ 7.6 billion. People & # 39; s United shares rose 14.7% while M&T shares rose 3%.

Forterra Inc.
+ 5.57%,
A manufacturer of pipes and products for water and drainage infrastructure in the United States agreed on Monday to be privatized by Quikrete Holdings Inc. in a cash transaction valued at approximately $ 2.74 billion.

Shares of Royal Caribbean Group
+ 12.16%
rose 11.1% after the cruise company posted a less-than-expected loss but reported revenue that fell more than forecast

Which assets are in motion?

US crude oil futures
+ 3.53%
rose over 3% to $ 61.25 a barrel on the New York Mercantile Exchange, boosting the stocks of energy companies.

Gold futures
+ 1.76%
was up $ 31, or 1.7%, to $ 1,808.40 an ounce.

The yield on 10 year treasury bills
rose 2 basis points to 1.365% and briefly threatened to reach 1.40% overnight. Bond prices move in the opposite direction of returns.

The Stoxx Europe 600 is on the foreign stock markets
fell 0.4% and the FTSE 100 in the UK
was down 0.2%. The Nikkei
+ 0.46%
rose 0.5% while the Shanghai Composite
fell 1.5%.

– With reporting by Joy Wiltermuth

Related Articles