U.S. stock benchmarks closed higher Monday, following losses for all three major indexes last week, as investors weighed brightening economic prospects against worries that interest rates will climb faster than anticipated.
How did stock benchmarks perform?
- The Dow Jones Industrial Average rose 103.23 points, or 0.3%, to close at 32,731.20, snapping a 2-session losing streak.
- The S&P 500 added 27.49 points, or 0.7%, to close at 3,940.59, also ending a 2-sessions slide.
- The Nasdaq Composite Index advanced 162.31 points to finish at 13,377.54, a gain of 1.2%, it’s largest daily jump in about 1.5 weeks, according to Dow Jones Market Data.
- The small-capitalization Russell 2000 index ended 0.9% lower at 2,266.84.
On Friday, the Dow put in a weekly decline of 0.5%, the S&P 500 and the Nasdaq both slid 0.8%.
What drove the market?
Technology-related stocks helped lift equities higher on Monday, after a modest pullback of the 10-year Treasury yield gave the start of March’s last full week of trading a boost.
Highflying tech shares were big winners amid the COVID-19 pandemic, but they also have been under pressure in recent months as government bond yields have risen.
The 10-year Treasury yield stood around 1.682% Monday, down from 1.729% Friday. Rising bond yields have been partially welcomed by Wall Street investors, as a sign of the U.S. economy’s return to health, but caution remains about if another sharp spike in rates could cause disorder in financial markets.
“Rising yields have yet to become overly punitive for the economy and risk assets, but 2.5% on the 10yr may be a key threshold,” a team led by Jason Pride, chief investment officer at Glenmede, wrote in a note Monday.
Investors have been skittish about the outlook for buying stocks on the heels of additional fiscal stimulus, state reopenings and vaccine rollouts that could lead to a major upswing for the economy and higher interest rates, as falling bond prices push yields higher and make speculative and high-growth assets look less compelling.
Video: How this trader is playing 10-year Treasury note futures right now (CNBC)
“With the federal debt now at $29 trillion and a total debt-to-GDP ratio at an astounding 145%, nominal inflation and interest rates have increased sharply in recent months,” said Phil Orlando, Federated Hermes’ chief equity market strategist, in emailed comments.
Orlando also said sharply higher 10-year Treasury yields “will certainly impair our ability to service that growing debt level.”
Concerns about climbing U.S. debt levels come as President Joe Biden’s economic team was preparing to recommend spending as much as $3 trillion on a set of efforts to boost the economy, reduce carbon emissions and narrow economic inequality, the New York Times reported Monday.
Last week’s slide lower for major stock benchmarks came after the Federal Reserve appeared to strike a dovish tone at its policy meeting on Wednesday, but bond yields rose on expectations for economic recovery and inflation this year.
“The Fed itself may remain one of the most important risks in the near term, simply due to market (over) reaction to its comments and (in) actions,” wrote Saira Malik, chief investment officer at Nuveen, in emailed comments.
Richmond Fed President Thomas Barkin, speaking at a virtual event hosted by Credit Suisse Asian Investment Conference, said that he’s hopeful that the U.S. is “on the brink of completing this recovery.”
“Vaccines are rolling out, case rates and hospitalizations are falling, excess savings and fiscal stimulus should help fund pent-up demand from consumers,” Barkin said, while describing households as “exhausted by isolation and freed up by vaccines and warmer weather.”
Markets also have monitoring any reaction in the Treasury market to the central bank’s decision Friday to sunset a yearlong reprieve that had eased capital requirements for big banks. The move disappointed some investors who had hoped for an extension, raising worries that appetite for bond prices may take a leg lower, putting further pressure on yields, if banks aren’t able to exclude assets like Treasurys from their so-called supplementary leverage ratios.
Meanwhile, Fed Chairman Jerome Powell said Monday that bitcoin lacks key ingredients that would make it a useful currency, saying the cryptocurrency instead is more of a gold substitute, during a webinar hosted by the Bank for International Settlements on innovation in the digital age.
On the public health front, AstraZeneca on Monday said that its COVID-19 vaccine was shown to be safe and 79% effective in preventing symptomatic disease in final-stage U.S. clinical trials. The U.S. trial indicated no increased chance of blood-clotting, which had led to the suspension of the vaccine in parts of Europe.
The U.S., while still the global leader in COVID-19 cases, said its vaccination program was on track to nearly triple its output in March, even as the health situation in Europe has been deteriorating.
In economic news, Chicago Fed national activity index fell to minus 1.09 in February, the first negative reading since last April.
A report on existing-home sales showed total sales dropped 6.6% from January to a seasonally adjusted annual rate of 6.22 million, the National Association of Realtors reported Monday, following two straight months of gains. Still, compared with a year ago, home sales are up 9.1%.
Which stocks were in focus?
- Starbucks Corp. shares rose 1.2% Monday after the companysaid it would halve water usage in its supply chain by 2030.
- Support.com’s stock skyrocketed 231.8% Monday, after the technical support services provider announced a deal to be acquired by bitcoin mining company Greenidge Generation Holdings Inc.
- Shares of Dynatrace Inc. added 1.7% and those of ZoomInfo Technologies rose 12% after Goldman Sachs analyst Kash Rangan launched coverage on the two companies with Buy ratings.
- Canadian Pacific Railway Ltd. is offering to buy Kansas City Southern in a deal valued at $25 billion. Canadian Pacific’s stock slumped 5.8%, while those for Kansas rose 11.1%.
- Tesla Inc. bull Cathie Wood of Ark Investment released a new four-year target for the electric-vehicle maker of $3,000 a share. Shares of the company rose 2.3%.
- Shares of AstraZeneca added 4% after studies confirmed it was safe and 79% effective.
How did other markets fare?
- The yield on the 10-year Treasury note TMUBMUSD10Y was down 4.7 basis point to 1.682%, the third-highest yield of the year.
- The ICE U.S. Dollar Index DXY, a measure of the U.S. currency against a basket of six major rivals, was down 0.2%.
- Oil futures finished lower, with the U.S. crude benchmark contract CL.1 losing 13 cents, or 0.2%, to settle at $61.55 a barrel.
- Gold futures GC00 shed 0.2% to settle at $1,738.10 an ounce on Comex.
- In Europe, the Stoxx 600 SXXP closed up 0.2% and London’s FTSE 100 UKX gained 0.3%.
- In Asian equity markets, the Shanghai Composite SHCOMP rose 1.1%, while Hong Kong’s Hang Seng Index HSI lost 0.4% and Japan’s Nikkei 225 NIK tumbled 2.1%.