The S&P 500 and Nasdaq closed lower on Monday as climbing Treasury yields and prospects of rising inflation triggered valuation concerns, hitting shares of high-flying growth companies. But Canada’s TSX closed with a modest gain, as energy and materials stocks rallied.
The Dow industrials also ended higher, boosted by a 4% surge in Walt Disney Co shares.
U.S. benchmark 10-year Treasury yields were up at 1.37% on Monday. Since the beginning of February, 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years.
Still, some analysts noted that the stocks pullback was expected after a torrid rally this year and in 2020.
“This is a small pullback primarily because stocks got a little overheated and there are a few worries out there that people are making mountains of out molehills,” said Brian Reynolds, chief market strategist, at Reynolds Strategy.
He cited worries about the rise in Treasury yields, but noted that junk bond yields hit all-time lows last week, suggesting there has been a shift from the safety of Treasuries to the riskiness of corporates among investors.
“That’s bullish for stocks,” he added.
Federal Reserve Chair Jerome Powell is scheduled to speak before the Senate Banking Committee on Tuesday, and investors are expected to look for any potential changes to the central bank’s dovish outlook. “What investors are grappling with ... is what does this (higher Treasury yields) mean from an inflation perspective. Because of that, there’s a little bit of tantrum in the market right now,” said Lindsey Bell, chief investment strategist at Ally Invest, in Charlotte, North Carolina.
The S&P/TSX Composite Index closed up 32.47 points, or 0.18%, at 18,416.74, with the gains fueled by a 5% jump in energy stocks and a 3.3% advance in materials. Suncor Energy was one of the biggest gainers, jumping 8.1%.
Oil prices rose nearly 4%, boosted by the expected slow return of U.S. crude output after last week’s deep freeze in Texas shut in production. U.S. producers shut anywhere from 2 million to 4 million barrels per day of oil output due to cold weather in Texas and other oil producing states, and the unusually cold conditions may have damaged installations that could keep output offline longer than expected.
Brent crude settled at $65.24 a barrel, rising $2.33, or 3.7%, while U.S. oil settled at $61.49 a barrel, jumping $2.25, or 3.8%. The U.S. benchmark crude contract for March delivery expires on Monday, and the more widely-traded April contract was up $2.44, or 4.1%, at 61.70 a barrel.
Gold rose more than 1.5% to a near one-week high, as expectations for rising inflation triggered equity valuation concerns and drove investors toward the safe-haven metal, while a weaker U.S. dollar lent further support. U.S. gold futures settled up 1.7% at $1,808.40.
But it wasn’t just gold boosting the TSX materials sector - so did many of the base metals miners. Copper prices shot above $9,000 a tonne for the first time since 2011 on Monday as premiums for quickly deliverable metal on the London Metal Exchange (LME) hit two-year highs, suggesting supplies are tight.
Other industrial metals also surged, with nickel trading above $20,000 a tonne for the first time since 2014.
Benchmark copper on the LME was up 1.9% at $9,075.50 a tonne at 1710 GMT, after earlier touching $9,269.50. Prices are up about 7% since China, the biggest consumer, returned on Thursday from its Lunar New Year holiday, taking gains to 16% this year after a 26% rise in 2020.
On Wall Street, shares of Apple Inc, Microsoft Corp, Alphabet Inc, Tesla Inc and Amazon.com Inc resumed their slide from the previous week, falling between 0.9% and 5%.
Largely upbeat fourth-quarter earnings had powered Wall Street’s main indexes to record highs early last week, but the rally lost steam, in part due to fears of a potential snag in U.S. vaccination efforts and inflation concerns emanating from stimulus measures.
The Dow Jones Industrial Average ended 27.37 points higher, or 0.09%, to 31,521.69, the S&P 500 lost 30.21 points, or 0.77%, to 3,876.5 and the Nasdaq Composite dropped 341.42 points, or 2.46%, to 13,533.05.
The last time the Dow ended higher, while the Nasdaq fell more than 2.4% was May 29, 2001.
The S&P 500 declined for five straight sessions, its longest such streak in a year.
Value stocks have outperformed growth shares in February, with investors betting on a rebound in industrial activity and a pickup in consumer demand as countries roll out vaccines to tame the pandemic.
The S&P 500 industrials and financial sector rose 0.3% and nearly 1%, respectively, while energy stocks surged 3.5% on higher oil prices.
Declining issues outnumbered advancing ones on the NYSE by a 1.13-to-1 ratio; on Nasdaq, a 1.63-to-1 ratio favored decliners.
The S&P 500 posted 71 new 52-week highs and no new lows; the Nasdaq Composite recorded 268 new highs and 15 new lows.
Volume on U.S. exchanges was 14.38 billion shares, compared with the 16.05 billion average for the full session over the last 20 trading days.
Read more: Stocks that saw action Monday - and why
Reuters, Globe staff
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