Stocks mostly rose and Treasury yields rose further Monday morning, after Congress moved to approve another significant COVID-19 relief package.
The S&P 500 and Dow advanced each, with the latter adding 150 points, or 0.5%. Nasdaq contributed to the losses, however, after the index closed a third consecutive weekly loss last week, amid declining technology and growth stocks.
The consumer discretionary, financial and material sectors led the gains in the S&P 500, while information technology and real estate were left behind.
Treasury yields resurfaced along the curve, and the 10-year benchmark yield hit a year-over-year high of more than 1.61% after the U.S. Senate passed a $ 1 virus relief package, 9 trillion over the weekend, with the additional stimulus seen likely to boost the pace of economic recovery.
The US House of Representatives is due to vote on the Senate version of the stimulus bill on Tuesday, which includes $ 300 a week in increased federal unemployment benefits through early September, $ 350 billion in state and local aid and $ 1,400 in stimulus checks for most Americans, albeit under stricter income restrictions than those included in the previous version of the House bill. The Senate bill, which passed a party line vote, is likely to pass the House and signed by President Joe Biden before the March 14 deadline, in order to renew federal unemployment benefits of the mid-pandemic era. March until the beginning of September.
The prospects for a strong recovery made possible both by the launch of the vaccine in progress and by historical levels of fiscal and monetary stimulus have significantly increased growth forecasts, while fueling concerns about an excessively rapid increase in inflation. Nervousness over an eruption of price pressures and higher interest rates has recently caused volatility in the stock markets. However, some strategists have suggested that these fears could be exaggerated and that the rate hikes should be seen more positively as a sign of a firm economic scenario.
“Stocks tend to struggle when interest rates rise sharply, especially when driven by real rates,” Goldman Sachs stock strategist David Kostin wrote in a note on Friday. “The tense positioning of the investor has exacerbated the recent strong stock market response, especially as both hedge funds and retail investors have held large positions in long-term stocks that are particularly sensitive to interest rates.”
However, “although the recent rate hike has largely affected stock prices, the pace of entry into equity funds over the past few weeks has accelerated compared to the beginning of the year,” added Kostin. “The rotation in equity funds has favored strategies that benefit from accelerated economic growth.”
That is, cyclical sectors such as energy and finance performed better in the year and especially in the last few weeks, and the shares of companies in high-contact sectors, including air travel and accommodation, resurfaced after a difficult 2020.
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9:30 am Eastern Time: Mixed Open Shares, Nasdaq Trades Low, While S&P 500 and Dow Rise
Here’s where the markets were trading right after the opening bell on Monday morning:
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S&P 500 (^ GSPC): +6.91 points (+ 0.16%) to 3,848.03
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Dow (^ DJI): +134.64 points (+ 0.43%) to 31,630.94
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Nasdaq (^ IXIC): -35.71 points (-0.24%) to 12,890.28
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Gross (CL = F): + $ 0.41 (-0.62%) to $ 65.68 a barrel
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Gold (GC = F): – $ 7.20 (-0.42%) to $ 1,691.30 per ounce
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10-year Treasury (^ TNX): +3.1 bps to render 1.585%
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9:06 am Eastern time: ‘We continue with the view that cyclical stocks continue to lead upwards, but we also see some expansion in market share’: JPMorgan
In recent weeks, investors have been aggressively shifting from technology stocks to the cyclical names that were hit hardest last year during the pandemic. The increase in interest rates also put more pressure on the high valuations of growth stocks. That said, given the considerable drop in technology stocks recently, these names may be ready to start stabilizing, according to at least one strategist.
“The recent market volatility has largely been a function of a painful rotation of the underlying market with high dynamics and expensive growth stocks, as inflation rates and expectations have sharply adjusted,” wrote strategist Dubravko Lakos- JPMorgan blocks in a note on Monday morning. “We see higher rates largely as a function of an earlier and stronger-than-expected economic recovery that supports our positive stock outlook.”
“We continue with the view that cyclical stocks continue to lead on the positive side as the business cycle strengthens, but we also see some expansion of market share due to the significant reduction in risk that occurred in high growth and dynamic stocks guys, “he said.
He added that the multiple price-earnings ratio of momentum shares “converged significantly” to that of the broader market, after having been raised in late 2020.
“In this process, growth stocks have also had their risks substantially reduced, decoupled from the momentum factor and now appear much less vulnerable (for example, even to increased bond yields),” he said.
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7:18 am ET Monday: Stock futures point to lower open
This is where the markets were trading before the opening bell:
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S&P 500 Futures (ES = F): 3,819.25, down 19.75 points or 0.51%
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Dow Futures (YM = F): 31,457.00, down 8 points or 0.03%
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Nasdaq Futures (NQ = F): 12,489.50, down 174.25 points or 1.38%
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Gross (CL = F): $ 66.26 per barrel, + $ 0.17 (+ 0.26%)
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Gold (GC = F): $ 1,683.80 per ounce, – $ 14.70 (-0.87%)
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10-year Treasury (^ TNX): +4.2 bps to produce 1.596%
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Emily McCormick is a reporter at Yahoo Finance. Follow her on Twitter: @emily_mcck
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