Stocks rose Monday. Technology stocks were the big winners as the bond market signaled concern about the economy.
The yield curve continued to fall. That means short-term interest rates are catching up to long-term rates. The 2-year Treasury yield rose 0.06 percentage points to 2.34%, while the 10-year yield fell 0.02 percentage points to 2.46%. Right now, that signals that recent inflation could damage economic demand for the long-term. So it’s not a surprise to see the Dow, which is made up of economically-sensitive stocks, perform the worst out of the three major indexes.
“Perhaps more challenging is the inversion of the yield curve, a traditional hallmark of recessions in the past,” wrote Louis Navallier, founder of Navallier & Associates.
Technology stocks outperformed on Monday, continuing a recent trend. The Nasdaq is up about 14% from March 14, the low point of its recent drawdown. That’s better than the 9.7% gain for the S&P 500 since its recent low hit earlier this month.
Concern that the Federal Reserve’s coming interest rate hikes will slow the economy down has been helping tech stocks. When that happens, more economically-sensitive stocks often perform poorly, while investors pile into fast-growing innovators found in the technology sector. And when economic demand slows, usually inflation ultimately does the same, which caps any increases in long-dated bond yields. Lower bond yields make future profits more valuable, and many growth and tech stocks are valued on the basis that they’ll churn out sizable profits many years in the future.
“Rate hike expectations keep marching higher, leading to… slower [economic] growth,” wrote Dennis DeBusschere, founder of 22VResearch. “As that happens growth stocks will benefit.”
As for the S&P 500, a rise to 4,587.77 would be a 10% gain from its closing low this year, which would mark the end of the correction, though others define exiting correction territory as the index going all the way back to its all-time high, which it hit in early January. When the S&P 500 hit its closing low in early March, it was deep into correction territory, defined as a 10% or worse decline. The index has clawed back some of its recent losses to trade at 4,575.52 currently, though it was never in bear market territory, defined as a 20% fall.
The other big moves was over in the oil market, where the price of WTI crude oil dropped about 9%, to just over $103 a barrel. That’s still above the $89 level it sat at in February just before Russia invaded Ukraine, but below the $130 multiyear peak hit in early March. Weighing on the price of oil, for the moment, is a Covid-19 wave in China that has prompted new lockdown measures in Shanghai, the largest city and financial center, tamping down demand for crude.
Markets want to see oil and gas prices drop, which would encourage more consumer spending. As oil fell more throughout the day, the Dow gained a bit.
Looking ahead for the broader market, this week will be an important one for markets as they try to assess the state of the economy.
The biggest release comes Friday, when the Bureau of Labor Statistics publishes the March jobs report. Economists are looking for 460,000 jobs to have been added, a decline from February’s result of 678,000. But the expected March number isn’t anything to scoff at—and a strong labor market will only embolden the Fed to lift interest rates by half a percentage point, rather than a quarter of a point, in May to fight high inflation.
“A strong report (and especially low unemployment) will pressure the Fed to hike 50 bps in May and perhaps June,” wrote Tom Essaye, founder of Sevens Report Research.
That type of aggressiveness from the Fed is well understood by markets at this point. Earlier this month, the central bank laid out plans to hike rates seven times this year and more next year, and Fed governors have been talking up the possibility of even more in recent days.
Elsewhere, markets will get a sense this week of how much consumers are spending. Nominal consumer spending, which accounts for prices paid by consumers, hits the wires Thursday. Economists expect spending to have gained 0.7% month-over-month for February, versus a 2.1% increase in January.
Overseas, the pan-European
Stoxx 600
rose 0.1%, and the
Shanghai Composite
ended less than 0.1% higher, paring earlier losses.
In the digital asset space,
Bitcoin
and other cryptocurrencies continued their price momentum from late last week with a firm rally on Monday. The price of Bitcoin, the largest crypto, popped up around 2% to near $48,000, having traded just above $40,000 last week.
Here are seven stocks on the move Monday:
Apple
(AAPL) gained 0.5% after having initially dropped. This followed a Nikkei Asia report that said
Apple
plans to make about 20% fewer iPhone SEs next quarter. Monday was Apple’s tenth consecutive gain, its longest winning streak since October 2010 when it also rose for 10 straight trading days. Shares in the tech giant’s suppliers also fell, with
Qorvo
(QRVO) down 1.5% and
Qualcomm
(QCOM)initially lower, then up 0.3%.
Shares in cigarette makers
Philip Morris
(PM) and
Altria
(MO) were down 1.5% and 3%, respectively, as
Walmart
(WMT) plans to end cigarette sales in some U.S. stores, The Wall Street Journal reported, citing people familiar with the matter.
Tesla
(TSLA) gained 8% after it would take steps to allow it to split its stock.
Deere & Co.
(DE) stock fell 0.9% even after getting upgraded to Neutral from Underweight at JPMorgan.
Write to Jack Denton at jack.denton@dowjones.com and Jacob Sonenshine at jacob.sonenshine@barrons.com
Read More: Tech Stocks Rip but Dow Lags After Bond Market’s Scary Signal