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The major stock indexes rose Monday, as technology stocks brought the market higher and continued their recent outperformance.
The
Dow Jones Industrial Average
closed up 104 points, or 0.3%, while the
S&P 500
rose 0.8%, and the
Nasdaq Composite
advanced 1.9%.
Tech stocks brought the S&P 500 higher, as the aggregate market value of tech names has the largest sector weighting in the index. The average stock in the index, though, wasn’t doing much. The
Invesco S&P 500 Equal Weight
Exchange-Traded Fund (RSP), which gives an equal weighting to each index component, gained just 0.2%
For the majority of the market, “stocks continue to tread water on continued concerns about slowing growth,” wrote Louis Navellier, founder of Navellier & Associates.
There’s little on the calendar in terms of market-moving data, and corporate news is quiet ahead of the start of earnings season on April 13, with the release of results from
JPMorgan Chase
(ticker: JPM). The only real attention-grabbing news Monday morning came from
Tesla
’s
Elon Musk, who bought a boatload of
Twitter
(TWTR) stock, sending that company’s shares soaring.
That’s not exactly going to move the overall market, and in the vacuum, the focus will remain largely on the Federal Reserve and monetary policy. Investors will get a sense of the Fed’s thinking when the minutes from the March FOMC meeting are released on Wednesday.
What the central bankers say about their plans to combat high inflation, including the possibility of raising the benchmark lending rate by half a percentage point in May, will be in focus. The minutes may also reveal the central bank’s plans to reduce its bondholdings, which would put downward pressure on the price of bonds and lift their yields. That’s another way for the Fed to increase borrowing costs.
“The big catalyst for this week is the Fed Minutes on Wednesday afternoon which is expected to shed some light on the balance sheet reduction process,” wrote analysts at New York Stock Exchange.
If the Fed indicates it will reduce its balance sheet rather quickly, “that will put a hawkish headwind on stocks,” wrote Tom Essaye, founder of Sevens Report Research.
The bond market is already feeling those headwinds. Treasuries have been selling off, sending their yields higher, but the two-year has risen faster than the 10-year, resulting in a yield-curve inversion. That’s a sign that markets see the coming rate hikes hitting economic demand. That’s not great for stocks, but history does show that it can take more than 12 months for a recession to happen after the yield curve inverts, while the stock market can keep gaining in that time.
What’s more, the worrisome signal from the bond market is providing some fire power for tech stocks. Investors often favor fast-growing tech stocks when the economic outlook dims. Most stocks see lower earnings growth while tech stocks’ profits power ahead.
So the tech outperformance Monday isn’t necessarily a surprise, as the Nasdaq has now risen almost 15% from its 2022 bottom in mid-March. That beats the S&P 500’s 10% increase from its March bottom for the year. Strategists at RBC recently noted that growth and technology stocks often outpace the broader market when the Fed tightens monetary policy.
Overall, “Worries that the economy will struggle to cope with a rapid pace of tightening by the Federal Reserve remained at the fore,” wrote Mark Haefele, chief investment officer of global wealth management at
UBS
.
Overseas, Frankfurt’s
DAX
gained 0.5%. Hong Kong’s
Hang Seng Index
jumped 2.1%, buoyed by news that a major regulatory hurdle for U.S.-listed Chinese stocks—many of which are also listed in Hong Kong—was likely to be cleared.
Here are six stocks on the move Monday:
Twitter soared 27% after Tesla (TSLA) CEO Elon Musk took a 9.2% passive stake in the social media company, according to a regulatory filing. Tesla stock gained 5.6%.
Starbucks
(SBUX) slipped 3.7% after the company said on Monday that it would suspend its stock repurchasing program, effective immediately.
Alibaba
(BABA),
JD.com
(JD), and
NIO
(NIO) jumped 6.6%, 7.1% and 9% respectively, in line with other U.S.-listed Chinese stocks, after China’s securities regulator said on Saturday that it would loosen its audit rules and further cooperation with overseas authorities. The move clears up uncertainty that has hung over this group of stocks in recent weeks, including the prospect of mass delistings for Chinese companies in the U.S. over a lack of accounting transparency.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com