Dow rises 100 factors as 10 yr yield returns to key 1.5% ranges, expertise shares weigh on the broader market
US stocks were split on Monday morning as traders prepared for the final week of volatile September and Treasury bond yields rose.
The S&P 500 fell 0.1% and the Nasdaq Composite lost 0.5% as technology stocks showed weakness in early trading. The Dow Jones Industrial Average rose 150 points as energy stocks and bank stocks rose.
The divergence in major averages came as US Treasury yields rose. The yield on 10-year government bonds rose due to economic optimism and inflation fears and briefly topped 1.5% on Monday. This is the highest since June and an increase of 1.30% at the end of August.
“We believe this [bond market] Movements have provided the spark for another “value rip” in the equity markets. We believe that the direction of longer-term rates should remain the main driver of market returns, sector rotation and thematic performance in the coming weeks, “said Chris Senyek of Wolfe Research in a customer announcement.
Alphabet, Apple and Nvidia were lower in early trading, weighing the S&P 500 and the Nasdaq. Tech stocks are believed to be sensitive to rising interest rates as higher debt costs can make long-term growth less attractive to investors.
Sentiment was also weighed down by a possible government shutdown at the end of the week.
Stocks related to the economic comeback drove the early gains as the U.S. Covid cases continued to spread.
According to data from Johns Hopkins University, there has been an average of about 120,000 cases per day in the US for the past week, compared with a 7-day average of more than 166,000 cases at the height of that latest wave in early September. Pfizer CEO Albert Bourla said Sunday that he believes the US could return to normal “within a year”, although annual vaccinations may be required.
Carnival Corp was up 4.5% and United Airlines was up 1.8% in early trading. Boeing stock rose 2%.
The rise in yields seemed to boost financial stocks on Monday, with the KBW Bank Index rising 2.8%. Goldman Sachs and JPMorgan Chase stocks rose more than 2%, making them among the top performers on the Dow.
Exxon Mobil and Occidental Petroleum led energy gains as WTI crude oil continued its run in September, topping $ 74 a barrel.
Additionally, August durable goods orders on Monday were well above expectations, largely driven by a surge in the transportation sector.
Investors watch progress in Washington as lawmakers try to prevent a government shutdown, US debt default, and the possible collapse of President Joe Biden’s broad economic agenda.
House spokeswoman Nancy Pelosi said Sunday that she expects the $ 1 trillion bipartisan infrastructure bill to be passed this week, but voting on the bill could be postponed from its original schedule on Monday.
Congress must pass a new budget by the end of September to avoid a shutdown, and lawmakers must also find a way to raise or suspend the debt ceiling in October before the US defaults on its debts for the first time.
“DC will attract more attention in the coming weeks as the political rationale surrounding infrastructure bills and the debt ceiling debate are likely to guarantee some market-moving headlines,” wrote Tavis McCourt, institutional equity strategist at Raymond James.
Wall Street is having a rollercoaster week amid a series of worries ranging from China’s real estate giant Evergrande’s debt crisis to the Federal Reserve’s signal to pull back monetary stimulus to Beijing’s crackdown on cryptocurrencies. Still, the large averages at the beginning of the week managed to offset steep losses and make small gains.
The blue-chip Dow ended the week 0.6% higher, breaking a three-week losing streak. The S&P 500 was up 0.5% for the week, while the tech-heavy Nasdaq Composite was up 0.02% last week.
“The market rally has shown that the buy-the-dip mentality remains,” said Mark Hackett, director of investment research at Nationwide.
So far, September lives up to its reputation for volatility and weakness as the major averages all posted modest losses. At the start of Monday, the S&P 500 was down 1.5% and was well on its way to seeing its first negative month since January. The broad equity benchmark is about 2% below its record high September 2. The Dow lost 1.6% over the month while the Nasdaq lost 1.4%.
But overall, investors continue to buy the dip for stocks. The S&P 500 fell up to 4% from its high during the month before reversing. According to Goldman Sachs, Friday was 224 trading days since the last 5% pullback, the eighth longest streak since 1930.
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“We remain cautious in the short term, especially as we enter the weakest season of the year (late September – mid-October),” said Larry Adam, CIO at Raymond James, in a press release. “However, given the continued robust economic growth, our tendency is to hold existing equity exposures or to increase them opportunistically when weak.”
Elsewhere, Bitcoin rebounded about 2% to $ 43,454 after falling 5% on Friday. The sell-off came after China’s central bank made all cryptocurrency-related activities illegal.