By William Watts and Sunny Oh
Dow ends 0.1% higher, after briefly trading above closing record
Stock-market benchmarks ended mostly lower Monday, while the Dow Jones Industrials benchmark eked out modest gains, amid worries that rising bond yields could render equities too expensive.
What did major indexes do?
Stocks put in a mixed performance () last week, with the Dow rising 0.1%, while the S&P 500 booked a 0.7% fall and the tech-heavy Nasdaq Composite shed 1.7%.
What drove the market?
Long-term Treasury yields were on the climb again Monday, after last week notching their biggest rise in six weeks (), sapping some enthusiasm of the stock-market bulls.
Higher "risk-free" yields can make it difficult to justify high valuations for equities, as it reduces the value of their future profits to investors. In a backdrop of rising rates and faster economic growth, technology companies with rapidly increasing earnings become less attractive to investors.
"Definitely, yields are the big thing," Randy Frederick, vice president of trading and derivatives at Schwab Center for financial research, told MarketWatch, adding that investors also have been worried in recent weeks about the threat of "a big spike" in inflation.
Although, Frederick also thinks such fears are a little overblown, like the recent selloff tied to GameStop Corp. (GME), it pointed to how vulnerable stock benchmarks trading near all-time highs remain to a selloff, due to any unexpected news, or even severe weather, a year into the pandemic. "When you are a tad off record highs, inflation scares or a storm could cause a pullback," he said.
Yields have been boosted by expectations that aggressive rounds of fiscal spending on top of extraordinary loose monetary policy by the Federal Reserve will stoke near-term inflationary pressures.
"The bond market appears to be pricing in strong economic data and GDP gains ahead, driven by increased consumer and business activity, and further pushed by more expected government stimulus," said James Ragan, director of wealth management research at D.A. Davidson, in emailed comments.
Ragan, however, said the recent weakness in tech, while so-called cyclical stocks benefited, underscored more of a reflection of pent-up expectations for a reopening of the economy.
Congress is expected to pass another round of aid spending set to come in near President Joe Biden's $1.9 trillion package. Investors also were penciling in the possibility of a large, long-term round of infrastructure spending.
The rollout of vaccines and falling COVID-19 case levels also continued to stoke hope for an acceleration in economic activity this year even as the number of U.S. deaths nears a milestone of 500,000 ().
Read:Stock-market investors are already betting on an infrastructure spending spree ()
See: 7 reasons stocks are a buy even as bond yields climb, strategist says ()
Rising yields and inflation worries also were seen as underlining worries over a potential hawkish turn by the Federal Reserve, even though the central bank has committed to holding off on policy changes until inflation moves above its 2% target.
"The difficulty for equity investors is that the further the Fed gets behind market forecasts both for GDP and rates, the greater the worry over a tantrum," by market participants over a potential Fed tightening, said Sean Darby, global head of strategy at Jefferies, in a note.
The Fed's deliberate efforts to displace market expectations by overshooting its 2% target should allow for further steepening of the yield curve, while real, or inflation-adjusted, rates remain negative, allowing cyclicals and companies with low variable costs to outperform, he said.
Energy shares, one of the most beaten-down sectors in Wall Street, saw strong gains on Monday. The S&P 500's energy constituents rose 3.5%, including Marathon Oil Corporation(MRO), which advanced 8.2%.
Fed Chairman Jerome Powell is set to testify before Congress on monetary policy this week.
The Conference Board said its leading economic indicators index had increased 0.5 points in January to a reading of 110.3. Economists had expected the index to show a rise of 0.4 points.
Which companies were in focus?
Which assets were on the move?
-With reporting contributed by Joy Wiltermuth
-William Watts; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
February 22, 2021 16:31 ET (21:31 GMT)
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