Stocks Mixed with Tech Issues Again Feeling the Pain…..
U.S. stocks closed mixed, as the markets were led by equities related to the expected global economic recovery, whereas more growth-oriented issues lagged. The combination of the $1.9 trillion fiscal relief package nearing deployment and further re-openings triggered in part by COVID-19 vaccine rollouts, helped boost optimism of a recovery, which in turn helped the value sectors such as Financials set the pace for the day. The Information Technology sector was again beaten down amid the recent spike in global bond rates, as Treasury yields rose again, while bond prices fell. A busy economic week that will deliver key reads on inflation and employment ahead of next week’s Fed monetary policy decision kicked off, as wholesale inventories continued to rise. M&A news dominated the corporate front, with GE reportedly set to combine its aircraft-leasing business with Ireland’s AerCap Holdings and McAfee Corp agreeing to sell its enterprise business to Symphony Technology Group for $4.0 billion. The U.S. dollar extended its recent run, while crude oil prices and gold were lower. Asia finished mixed and Europe closed higher amid some reopening optimism.
The Dow Jones Industrial Average rose 306 points (1.0%) to 31,802, the S&P 500 Index lost 21 points (0.5%) to 3,821, and the Nasdaq Composite was down 311 points (2.4%) at 12,609. In heavy volume, 1.2 billion shares were traded on the NYSE and 5.9 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.04 to $65.05 per barrel. Elsewhere, the Bloomberg gold spot price decreased $19.39 to $1,681.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.4% to 92.38.
U.S. stocks remain in adjustment mode, with growth and momentum stocks continuing to see pressure, while Financials and cyclical stocks seem to be continuing to benefit from the rotation. The persistent rise in interest rates and rally in crude oil prices—which was briefly amplified by news from Saudi Arabia that the world’s largest crude terminal was attacked over the weekend by a drone from the sea—have bolstered the Financials and Energy sectors. Meanwhile, over the weekend, the Senate passed President Joe Biden’s $1.9 trillion coronavirus relief package, which has helped paint the bullish backdrop, and the House is set to vote tomorrow and is expected to approve the bill.
Treasury yields remained in focus, U.S. dollar extended recent run as week begins
Treasuries were lower, as the rate on the 2-year note ticked 3 basis points (bps) higher to 0.16%, the yield on the 10-year note rose 4 bps to 1.61%, and the 30-year bond rate moved up 3 bps to 2.33%.
Bond yields have jumped amid the backdrop of optimism regarding a robust economic recovery in the second half of 2021 and increasing inflation expectations. The markets also appear concerned that the Fed may be losing control of the yield curve, which has witnessed a noticeable bear steepening, where longer-term rates rise faster than short-term rates. Ahead of next week’s monetary policy decision from the Fed, commentary from policymakers, notably Chairman Jerome Powell, has suggested the Central Bank is not concerned about the action in the interest rate markets and rising inflation expectations, and it remains solely focused on fostering an accelerated recovery in the job market. The Fed has a dual mandate of price stability and maximum employment.
The velocity of the move up in rates seems to have caught the market’s attention more so than the actual level of yields and the U.S. dollar continues to extend a rebound to two-month highs. The rise in the greenback could also contribute to the volatility as the weakness in the dollar that began in the Summer of 2020 has been part of the bullish 2021 theme.
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