U.S. stocks rose on Monday as government bond yields fell and investors took the opportunity to grab stocks of broken technology and other growth stocks.
The S&P 500 rose 0.6% in a volatile session, reversing an earlier decline of nearly 1.7%. The Dow Jones Industrial Average rose 0.7% after suffering its worst session since October 2020.
The technology-focused Nasdaq Composite Index, which performed lower than other indices this year, added 1.3%. Shares of Twitter rose 5.6 percent after social media company accepted a $ 44 billion deal to take over Elon Musk.
All three indexes opened lower after Chinese stocks suffered their worst sell-off in more than two years as Beijing stuck to its Zero Covid strategy as it faced growing cases in major cities. Oil prices fell, falling below $ 100 a barrel at one point before rising on Monday afternoon.
Declining bond yields are signaling to investors that the Federal Reserve may not take action to raise interest rates as aggressively as they fear, investors said.
“Tariffs were a burden on the market,” said Jack Ablin, chief investment officer of Cresset Capital. “Now what we’re seeing is a reversal of that trend.”
Yields on benchmark 10-year government securities fell to 2.825% on Monday from 2.905% on Friday as investors sought more secure assets to hold. Profitability and prices are moving backwards. The Wall Street Journal’s dollar index, which measures the dollar against a basket of currencies, added 0.6 percent.
“I think a lot of growth stocks have been punished too severely,” said Brian Price, head of investment management for the Commonwealth Financial Network. “Part of what we see may be the opposite. Longer-term interest rates have just moved so far. The market is moving away and judging whether they should have moved so fast. And falling interest rates tend to support stock growth. “
Shares of Microsoft and Alphabet, a parent of Google, added more than 2%.
Meanwhile, energy shares of the S&P 500 fell 3.6%. Shares of Schlumberger fell 7.1%, Halliburton fell 6.3% and APA, the parent company of Apache, fell 4%.
Investors are worried that China’s tough policies to combat Covid-19 will further disrupt global supply chains. But prolonged blockages and a slowdown in China’s economy could also reduce global oil demand, investors said.
The Shanghai Composite and CSI 300 indices fell 5.1% and 4.9%, respectively. These were the biggest one-day percentage declines for the two benchmarks since February 2020, in the early days of the pandemic.
The offshore yuan fell about 1% to about 6.59 per dollar. This is the lowest since November 2020, according to FactSet. The decline was based on last week’s sell-off, which ended months of relative stability.
As Shanghai remains closed amid China’s biggest Covid-19 epidemic, residents are turning to social media to express food shortages or swap with neighbors. Anxiety and hunger have led many to question Beijing’s pandemic strategy. Photo: Chinatopix via AP
“The problem with inflation is that it can build in, and we see that inflation is getting pretty sticky,” said Sebastian McKay, Invesco’s multi-asset fund manager. “What we are seeing is a combination of the war in Ukraine and the blockade in China, which is causing supply problems.
Restricting traffic in China could also reduce oil demand. Brent crude, the international benchmark for oil, rose 24 cents to $ 102.40 a barrel. Oil prices remain close to historically high levels due to fears of disruption in energy markets from Russia’s invasion of Ukraine.
In other corporate news, Coca-Cola shares rose 1.2%. The company said it had registered higher sales in the last quarter as demand held back amid rising prices. Advanced Micro Devices added 2.9% after analyst Raymond James raised his rating on the chipmaker’s shares.
Rising inflation has prompted the Federal Reserve to step up efforts to combat it. Last week, Fed Chairman Jerome Powell signaled that the central bank was ready to tighten monetary policy more quickly and said it was likely to raise interest rates by half a percentage point at its meeting in May.
Investors appear to be considering an even bigger leap, said Brian Price, head of investment management for the Commonwealth Financial Network. “It scared some investors,” he said.
Money managers worry that the Fed’s aggressive rate hike could slow economic growth or even turn the economy into recession. This could lead to a situation where the Fed has to raise interest rates in the short term but lower them in the long term, Mr Mackay said.
The Cboe Volatility Index – the so-called Wall Street Fear Indicator, also known as the VIX – rose to 30.40, near its highest level since mid-March.
The Dow Jones Industrial Average on Friday published its worst one-day percentage change since October 2020.
Photo: BRENDAN MCDERMID / REUTERS
Gold futures fell 1.7% to $ 1,901.00 an ounce. While gold has historically been seen as a hedge of inflation, it does not yield, making it less attractive than government bonds at a time of rising interest rates. The cost of buying gold denominated in dollars is also more expensive for foreign investors when the dollar strengthens.
Bitcoin, the world’s largest cryptocurrency in terms of market value, rose 1.5% of its value in the dollar at 17:00 ET on Sunday to 40,135 dollars on Monday. Cryptocurrencies can move in line with broader market sentiment, with investors buying riskier, more volatile assets when sentiment is strong and selling when it is weaker.
Overseas, the continental Stoxx Europe 600 fell 1.8 percent. South Korea’s Kospi fell 1.8 percent and Japan’s Nikkei 225 fell 1.9 percent.
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Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and to Justin Baer at justin.baer@wsj.com
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