Nasdaq rises slightly to start week, shaking off jump in bond yields
Stocks moved slightly higher on Monday as Wall Street tried to rebound from a losing week and navigated a jump in Treasury yields.
The tech-heavy Nasdaq Composite rose 0.40%, and the S&P 500 gained 0.31%. The Dow Jones Industrial Average perked up 16.08 points, or less than 0.1%. The Dow was up more than 300 points earlier in the session, but the market gave up some of its gains as the day progressed and the 10-year Treasury yield pushed above 3%.
Investor sentiment got a boost after Beijing rolled back some Covid-related restrictions. Meanwhile, The Wall Street Journal reported that Chinese regulators are wrapping up their investigations into ride-hailing giant Didi — potentially signaling that the country's crackdown on its tech sector may be coming to an end.
Overseas, stocks rose more than 1% in China and over 2% in Hong Kong. The U.S.-traded shares of Didi jumped more than 24%, while JD.com and Pinduoduo added 6.5% and 5.6%, respectively.
The developments in China could encourage investors about the prospects for the U.S. and European economies as well.
"Since those lows near 3,800 in the S&P 500 there has been real progress: China is reopening and hopefully the economy will be close to operating at near-full capacity within a month. That will add a large tail-wind to the global economy, and perhaps most importantly, ease supply chain stress," Tom Essaye of the Sevens Report said in a note.
The China news appeared to boost casino stocks, with shares of Wynn Resorts gaining nearly 2.5%. Solar stocks ticked higher after the Biden administration moved to suspend tariffs on solar panel products from four countries, with Enphase Energy rising more than 5%.
Elsewhere, shares of Amazon rose nearly 2% following a 20-for-1 stock split. Amgen and Salesforce each dropped more than 1%, weighing on the Dow.
Investors have been grappling with fears that the central bank could raise interest rates too fast and too much, causing a recession. Recent statements from the policy-setting Federal Reserve members indicate that 50 basis point — or a half-percentage-point — rate increases are likely at the June and July meetings.
The 10-year Treasury yield hit its highest level in nearly a month as investors sold bonds. Though the move appeared to knock stocks off their highs, it did not cause a major decline in equities like similar moves did earlier this year.
"I think the shock has worn off of piercing that 3% level for the 10-year. We've been there before, and we came back," said Wayne Wicker, chief investment officer at MissionSquare Retirement. "While certainly interest rates moving up is something that equity guys don't like, it's somewhat of a foregone conclusion that we're going to see higher rates in the near term. The question is has the bond market has priced a lot of that in yet."
Investors will be focused on the consumer price index reading for May, which is slated for release on Friday morning. The key inflation gauge is expected to be just slightly cooler than April, which could be interpreted by some as a confirmation that inflation has peaked.
The U.S. economy added 390,000 jobs in May, the Labor Department said Friday, which came in better than expected despite fears of an economic slowdown and amid the roaring pace of inflation. Some investors believe the strong hiring data could be clearing the way for the Fed to remain aggressive.
"For now, the market sees a Federal Reserve trying to navigate a painful and bumpy road, yet trying to find a soft exit," said Quincy Krosby, chief equity strategist at LPL Financial. "And the market finds itself between wanting to believe in the rallies but not believing that the Fed can negotiate a soft landing."
Monday's action followed another disappointing week for investors as the major averages suffered modest losses. The stock market has had a volatile year with the major averages pulling back double digits from their record highs. The S&P 500 is off by about 14% from its all-time high reached in January. The equity benchmark briefly dipped into bear market territory on an intraday basis last month.