In February, fear of inflation and a spike in rates drove stocks sharply lower and volatility sharply higher. At some point, rising 10-year yields are going to draw money of the stock market. Whether it causes a surge in volatility is not predictable at this time.
The major U.S. stock indexes finished mixed on Monday amid concerns over rising U.S. Treasury yields and a weaker technology sector.
In the cash market, the benchmark S&P 500 Index settled at 2670.29, up 0.15 or +0.01%. The blue chip Dow Jones Industrial Average closed at 24448.69, 14.25 or -0.06% and the tech-driven NASDAQ Composite finished the session at 7128.60, down 17.53 or -0.25%.
The S&P 500 Index, which posted the only gain for the day amongst the big three market gauges, was pressured by a 0.4 percent decline in technology stocks, but the loss was absorbed by a 1.1 percent gain in the telecommunications sector.
The Dow posted a loss for the fourth consecutive day for the first time since March. Weakness in Goldman Sachs weighed on the average.
The NASDAQ Composite closed lower for a third day, pressed by losses in Facebook, Amazon, Netflix and Alphabet (Google’s Parent).
On the earnings front, Hasbro, Halliburton and Alaska Air all posted quarterly results before the bell Monday. Hasbro earnings and sales fell short of estimates, but the stock traded 3 percent higher. Halliburton’s quarterly profit matched analyst expectations, while its revenue missed. Alaska Air reported a stronger-than-expected profit but disappointing revenue.
There was also corporate news to deal with but mostly on a positive note. Shares of Merck rose 2.4 percent after an upgrade from Goldman Sachs. Caterpillar climbed 0.5 percent after Citi raised its rating on the Dow component. However, Alcoa shares plummeted 13.5 percent after the U.S. government said it would not impose previously announced sanctions against Rusal until October.
The direction of the market today is likely to continue to be influenced by earnings and Treasury yields.
Overall, this earnings season has been strong thus far. More than 82 percent of S&P 500 companies that have reported through Monday morning have topped earnings estimates, according to FactSet.
On Monday, the 10-year Treasury note yield hit a high of 2.99 percent, threatening to reach 3 percent or higher in January 2014. Investors have been selling Treasurys this month, pushing yields higher, amid expectations of rising inflation, which could prompt the Federal Reserve to tighten monetary policy pace.
In February, fear of inflation and a spike in rates drove stocks sharply lower and volatility sharply higher. At some point, rising 10-year yields are going to draw money of the stock market. Whether it causes a surge in volatility is not predictable at this time.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.