Stocks wavered to a mixed close on Monday as benchmark U.S. Treasury yields backed down from 5% and investors shifted their focus to this week’s high profile earnings and closely watched economic data.
The S&P 500 index ended modestly lower, while a host of interest rate sensitive momentum stocks buoyed the tech-laden Nasdaq Composite Index to a higher close. Both the Dow Jones Industrial Average and the S&P/TSX Composite Index notched their fourth straight daily drop.
“The story continues to be about interest rates, and to some extent switching from ‘higher for longer’ to ‘how much higher for how much longer?’” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “The market has accepted the idea that the Fed is not going to lower rates any time soon.”
The run-up in yields on the 10-year U.S. Treasury note, seen as a safe haven in times of economic uncertainty and a benchmark for borrowing costs around the world, has been driven by investors pricing in stronger U.S. growth.
Yields in longer-term bonds rose quickly after Federal Reserve Chair Jerome Powell said last week that the U.S. economy’s strength and hot labor market might warrant tighter financial conditions.
The 10-year yield was briefly bid at a 16-year high of 5.001% on Thursday, breaking 5% again on Monday morning before slipping to 4.83%. It has risen 160 basis points since mid-May.
Yields have been tempered by the threat of an expanding conflict in the Middle East, which has caused investors to turn to the safe haven of U.S. government bonds after Hamas fighters attacked Israel on Oct. 7.
“I think what you’ll see is a greater flow of foreign capital going to the United States where investors are going to seek a safe harbor,” said Bernard Baumohl, chief economist at The Economic Outlook Group in Princeton, New Jersey.
Billionaire investor Bill Ackman revealed Monday that he shared Baumohl’s sentiments, disclosing that he covered his previous bets against Treasuries on his expectation that the war would push more investor dollars towards U.S. Treasuries.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 68.90 points, or 0.4%, at 19,046.74, its lowest closing level since Oct. 4, as a drop in commodity prices led to a sell-off in resource shares.
“A lot of the commodities which had been good places to hide in the last few weeks are giving back some of those gains,” said Greg Taylor, portfolio manager at Purpose Investments. “We got oil and gold both down and I think that’s just a little bit of the fear trade, that came in on Friday as people bought commodities ahead of the weekend, has been given back.”
The TSX energy sector lost 1.5% as U.S. crude oil futures settled 2.9% lower at US$85.49 a barrel after diplomatic efforts in the Middle East intensified.
The materials sector, which includes precious and base metals miners and fertilizer companies, was down 1.3% as the price of gold retreated from a five-month high.
India’s JSW Steel Ltd told Reuters that discussions with Teck Resources Ltd over buying a possible stake in the Canadian company’s coking coal unit have yielded “nothing concrete.” Teck’s shares ended 1.3% lower, while shares of Dye & Durham Ltd tumbled 13.5% after CIBC and Cormark Securities cut their price target on the stock.
The rate-sensitive utilities sector was a bright spot. It ended up 0.7%, recouping some recent declines.
The Bank of Canada is expected to leave interest rates on hold at a policy decision on Wednesday.
The Dow Jones Industrial Average fell 190.87 points, or 0.58%, to 32,936.41; the S&P 500 lost 7.12 points, or 0.17%, at 4,217.04; and the Nasdaq Composite added 34.52 points, or 0.27%, at 13,018.33.
The S&P 500 ended below its 200-day moving average, a closely watched technical level, for the second straight session.
The week ahead promises to be eventful for earnings, with reports by nearly one-third of the companies in the S&P 500.
These include megacap momentum drivers, including Microsoft Corp, Alphabet Inc, Meta Platforms Inc and Amazon.com, along with heavy-hitting industrials such as General Motors Co, Ford Motor Co and Boeing Co.
“With nearly a third of the S&P reporting this week, investors are hoping these ‘magnificent seven’ companies will end up surprising to the upside,” said Sam Stovall, chief investment strategist of CFRA Research in New York.
So far, 86 of the companies in the S&P 500 have posted earnings. Of those, 78% have beat expectations, LSEG data showed.
Analysts see aggregate S&P 500 earnings for the July-September period growing 1.2% year-on-year, slightly below the 1.6% growth projected at the start of the month, according to LSEG.
The U.S. Commerce Department on Thursday will announce third-quarter gross domestic product, seen accelerating to 4.3%. Its wide-ranging Personal Consumption Expenditures (PCE) report, due on Friday, is expected to show annual headline and core inflation cooling down to 3.4% and 3.7%, respectively.
“The Fed wants to slow inflation at a quicker pace than it slows economic growth, and it’s doing so,” Pursche added. “That’s the classic definition of a soft landing.”
Geopolitical turmoil is also on the radar, with market participants looking for potential signs the Israel-Hamas conflict could broaden or escalate.
Of the 11 major sectors in the S&P 500, communication services notched the biggest gain, while energy shares suffered the largest percentage drop.
Walgreens Boots Alliance surged 3.3% after J.P. Morgan upgraded the pharmacy chain operator to “overweight” from “neutral.”
Chevron fell 3.7% after the company said it would buy smaller rival Hess Corp in a $53 billion all-stock deal. Hess dipped 1.1%.
Agricultural sciences firm FMC tumbled 13.2% after the company lowered its third-quarter guidance.
Declining issues outnumbered advancers on the NYSE by a 2.10-to-1 ratio; on Nasdaq, a 2.04-to-1 ratio favored decliners. The S&P 500 posted one new 52-week high and 58 new lows; the Nasdaq Composite recorded 14 new highs and 514 new lows. Volume on U.S. exchanges was 10.80 billion shares, compared with the 10.67 billion average for the full session over the last 20 trading days.
Reuters, Globe staff