Stocks, including big tech and smaller growth, rose because interest rates eased.
The Dow Jones Industrial Average rose 103.23 points, or 0.32% to close at 32,731.20. The S&P 500 gained 27.49 points, or 0.70% to close at 3,940.59, and the Nasdaq Composite added on 162.31 points, or 1.23% to close at 13,377.54. The biggest gainer in the S&P 500 was Kansas City Southern (ticker: KSU), whose shares gained 11.1%, on a proposed merger with Canadian Pacific Railway (CP).
The 10-year Treasury yield fell to 1.69%, after having closed Friday at 1.73%. The yield has almost doubled year-to-date as inflation and economic demand expectations firm; Covid-19 vaccinations are enabling reopenings, which are being met by pent-up demand from trillions of dollars of fiscal stimulus. But when the yield on a risk-free bond rises this much, the risky stocks become much less attractive and their valuations come down. “Investors will remain anxiously focused on interest rates in coming months,” wrote David Kostin, chief U.S. equity strategist at Goldman Sachs, in a note.
Tech stocks had a strong showing Monday. That’s not surprising, as companies that still have significant growth and profitability ahead of them do well when longer-term rates fall. The four top gainers in the Dow today were tech stocks, granted, more mature than many: Intel (INTC), Apple (AAPL), Cisco Systems (CSCO), and Microsoft (MSFT), with respective stock gains of 2.93%, 2.83%, 2.69%, and 2.45%.
Smaller and less-profitable growth names exploded higher, with Okta (OKTA) and Coupa Software (COUP) up 4.2% and 3.7%, respectively. Smaller growth stocks have seen a marked decline in valuation of late as rates have surged; Okta and Coupa stock are both down double-digit percentages for the year to date. Citi notes that small-cap growth valuations are trading at a significantly lower premium to small-cap value.
Overall, it was a quiet day on Wall Street, and with little economic data and few earnings releases, stocks seemed to have traded purely on the movement of interest rates. Up next for markets this week: a large batch of data on employment, inflation, and consumer and business spending.
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