Stock, Bond Traders Appear Unsure About Next MoveU.S. Treasury yields fell on Monday as lingering concerns over stock market volatility held rates in check. Sharp sell-offs in U.S. equity markets tend to drive investors into the safe-haven U.S. Treasury market, putting pressure on interest rates at a time when investors fear higher rates are coming. This tends to create investor indecision, while often leading to a volatile move once the fear subsides.
The major U.S. equity markets finished mixed on Monday as investors continued to express concerns over a slew of corporate earnings reports due this week and rising geopolitical tensions. The NASDAQ Composite was able to catch a bid on Monday, while sellers pressured the S&P 500 Index and the Dow Jones Industrial Average.
In the cash market, the benchmark S&P 500 Index settled at 2755.88, down 11.90 or -0.43%. The blue chip Dow Jones Industrial Average closed at 25317.41, down 126.93 or -0.50% and the tech-based NASDAQ Composite finished at 7473.59, up 24.56 or +0.33%.
The S&P 500 Index was pressured by a drop in the financials sector. The SPDR S&P Bank ETF (KBE) fell 2.8 percent, posting its worst day since October 10, when it pulled back 3.1 percent. It was dragged lower by weakness in Bank of America and Citigroup. Both stocks fell more than 3 percent. Morgan Stanley and Goldman Sachs rounded out the selling by dropping 1.4 percent and 2.4 percent respectively.
The Dow was driven lower by Goldman Sachs, a component of the average. The NASDAQ Composite snapped a four-day losing streak with support coming from Amazon and Apple, which rose 1.4 percent and 0.6 percent, respectively.
Earnings remain in focus this week, taking some of the heat away from concerns over rising Treasury yields, China’s weakening economy and geopolitical concerns in the Middle East and Italy.
There was some positive news on Monday. Halliburton and off-road vehicle maker Polaris Industries both reported better-than-expected earnings before the bell Monday, Kimberly-Clark also posted a stronger-than-forecast profit.
Later this week, investors will get the opportunity to react to earnings reports from Dow members 3M, McDonald’s, Caterpillar and United Technologies. The big events, however, will be reports from Amazon and Google-parent Alphabet.
According to FactSet, the earnings season is off to a good start thus far this quarter with 82 percent of the S&P 500 companies reporting earnings that have topped expectations.
U.S. Treasury Markets
U.S. Treasury yields fell on Monday as lingering concerns over stock market volatility held rates in check. Sharp sell-offs in U.S. equity markets tend to drive investors into the safe-haven U.S. Treasury market, putting pressure on interest rates at a time when investors fear higher rates are coming. This tends to create investor indecision, while often leading to a volatile move once the fear subsides.
Yields have been trending toward multi-year highs for several weeks on the back of the U.S. Federal Reserve’s recent monetary policy statement in late September and comments from Federal Reserve Chairman Jerome Powell.
Last week, the Fed released minutes from its September meeting that showed clear hawkish sentiment, with members confident in the Fed’s interest rate path. The Fed wants to continue to raise rates gradually, believing that this is the best way to sustain stable economic growth.