Stocks rise at close as key bond yields top 3%

Buyers weighed in after a sharp sell-off on Friday, in which the Dow fell almost 3%, the S&P 500 lost more than 3% and the Nasdaq fell more than 4%.

The general concerns that still persist: The Federal Reserve insists on reducing high inflation by raising short-term interest rates and reducing its holdings of bonds, which lowers bond prices and raises their yields. That’s not news to investors, but the market is still trying to figure out how fast the Fed will go and how fast it will shrink its balance sheet, a process known as quantitative tightening.

China’s zero-tolerance policy for the spread of Covid-19 is causing some economic activity to shut down, with both services and manufacturing Purchasing Managers’ Indices below 50, the level that separates a growing economy from a in contraction, in March. . Slower Chinese growth is already causing some companies to warn investors about second-quarter results, with

Apple

(ticker: AAPL) saying it could see a sales hit of $4bn to $8bn in the quarter due to limited supply from China.

“[Economic] growth concerns have been compounded by China’s ongoing struggles to contain COVID-19,” wrote Mark Haefele, chief investment officer of global wealth management at UBS.

Given that markets have digested some of these developments, it’s not necessarily a surprise to see stocks rally a bit on Monday.

“All of this negativity and timing may be what we need for a short-term rebound,” New York Stock Exchange strategists wrote.

It may also seem disconcerting that tech stocks rebounded while bond yields rose as well.

The 10-year Treasury yield has risen to 3%, a new pandemic-era closing high. The increase in the yield reflects expectations of average annual inflation for the next 10 years of just under 2.9%. Investors often demand a higher rate of return than the rate of inflation, and that eventually starts to show up in the bond’s yield.

Technology stocks typically struggle when performance increases. But selling in tech was already worse than other sectors on Friday, so tech rallied on Monday.

That is the short term.

The stock market, technology included, has a long way to go before stocks see sustained gains. The S&P 500 is still 10% below its March 29 level, which marked a multi-month high. It is still below its 50-day moving average, indicating that market participants are not yet comfortable buying the stock at levels consistent with its recent trend. The Nasdaq is also below its 50 day moving average.

“With SPX coming off one of its worst months in half a century…with the specter of aggressive rate hikes in the near future, the mood isn’t exactly hopeful,” wrote Frank Cappelleri, chief market technician at Instinet. .

Market sentiment remains low at the moment as appetite to buy stocks has yet to fully recover. A sentiment survey for individual investors shows a 13-week average that is near a multi-decade low, according to 22V Research. “Sentiment readings remain low as investors grapple with uncertainty related to US monetary policy, European growth, and China’s COVID lockdowns and stimulus,” wrote Dennis DeBusschere, founder of 22V Research.

The Fed makes its decision on how fast to raise interest rates, which it probably will, this Wednesday afternoon.

“There will be some clarification on the American political front this week, setting the backdrop for another possible positive narrative shift,” DeBusschere wrote.

Although markets are already expecting Fed Chairman Jerome Powell to strike a hawkish tone, one that signals a definite intention to hike rates, he is likely to stick to that tone. That’s because, if it sounds dovish, the opposite, interest rates may fall in response, which is not what the Fed wants, wrote Tom Porcelli, an economist at RBC.

Here are six stocks in motion on Monday:

amazon.com

(AMZN) initially fell, then gained 0.2% after shares fell sharply on Friday following a weaker-than-expected sales forecast for the second quarter.

Apple shares fell, before ending down 0.2%. The European Commission issued a formal complaint against the company for abusing its position in the mobile wallet market. Shares fell 3.7% on Friday after the tech giant issued a cautious outlook for the June quarter.

global payments

(GPN) shares fell 9.2% after the company reported a gain of $2.07 per share, beating estimates of $2.04 per share, on sales of $2.16 billion, above expectations of $1.95 billion.

in semiconductors

(ON) shares rose 6.7% after the company reported a profit of $1.22 per share, beating estimates of 17 cents per share, on sales of $1.95 billion, above expectations of $1.91 billion.

Berkshire Hathaway
‘s

Class B shares (BRK.B) fell 1.6% after the Warren Buffett-led conglomerate reported first-quarter after-tax operating profit of $7 billion, down less than 1% from the prior year period. , as the company reduced its share buyback as the share price rose.

American Depository Receipts

LITTLE BOY

(NIO) rose 4.7% after deliveries of its electric vehicles in April fell from the previous month.

Email Joe Woelfel at [email protected] and Jacob Sonenshine at [email protected]