The Dow Jones Industrial Average bounced back from earlier losses to finish higher Monday, but the broader stock market closed lower as fears over rapidly rising rates continued to weigh on sentiment.
The bond market was closed in observance of Columbus Day.
How did major benchmarks fare?
The Dow Jones Industrial Average DJIA, +0.15% rose 39.73 points, or 0.2%, to 26,486.78. The S&P 500 index SPX, -0.04% fell 1.14 points to 2,884.43 and the Nasdaq Composite Index COMP, -0.67% shed 52.50 points, or 0.7%, to 7,735.95.
Defensive stocks drew bids, with consumer staples higher. One measure of consumer staples, the Consumer Staples Select Sector SPDR ETF XLP, +1.38% , rose 1.4%.
Monday’s action comes after the Nasdaq logged its worst weekly decline since March 23 and the S&P 500 logged its second straight weekly decline as long-dated Treasury rates surged to their highest since 2011. Bond prices fall as yields rise.
What drove the market?
A jump in government bond yields over the past several sessions has perhaps signaled a new phase in postcrisis markets that have enjoyed a protracted period of ultra-low yields.
Last week saw the yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +0.35% rise 17 basis points, representing its sharpest weekly advance since February and taking it toward 3.23%, its highest level in about seven years.
Higher yields equate to steeper borrowing costs for corporations and investors alike, and have caused a reassessment of equity valuations, already deemed lofty by some measures. On top of that, richer rates of so-called risk-free bonds can compete against equities, which are perceived as comparatively riskier.
Climbing rates, however, have come against a solid backdrop for the domestic economy, with a number of economic indicators supporting the notion that the U.S. expansion continues apace.
As for quarterly results, companies in the S&P 500 are projected to post 10% earnings growth in 2019, according to FactSet, offering more evidence of economic health.
Abroad, investors were also watching developments in Europe, with the EU signaling in a letter Friday to Italy’s economic minister, Giovanni Tria, that Italy’s budget targets are a source of concern for the trading bloc, setting up a potential market-disrupting clash.
What were analysts saying?
The market was influenced by worries that U.S. economic growth may be jeopardized by higher interest rates, although buying in “oversold pockets” helped some stocks to recover, according to Quincy Krosby, chief market strategist at Prudential Financial.
“Given that today is a federal holiday and the bond market is closed means that there’s less volume in today’s market. This lends itself to a market that can be skewed in either direction,” she said.
“The technical underpinnings of the equity markets argue on the side of caution. Despite new highs by the S&P 500 and Dow Industrials just a few days ago, the broad market continues to deteriorate,” said Bruce Bittles, chief investment strategist at Baird, in a note. “Less than 50% of S&P 500 and Nasdaq stocks are trading above their 50-day moving averages. Although the popular averages remain in close proximity to record highs, the number of NYSE issues hitting new 52-week lows doubled from the previous week.”
David Madden, market analyst at CMC Markets UK, said investors are seeing the jump in the 10-year yield as a sign that it’s time to exit stocks as rates are likely to rise further, particularly with the Federal Reserve expected to hike interest rates again in December.
Which stocks were in focus?
Shares of Tesla Inc. TSLA, -4.35% dropped 4.4%, despite the electric-car maker Sunday night saying that it has achieved its goal of making the Model 3 sedan the safest car ever built.
Read: Einhorn sees shades of Lehman in Tesla, says Musk knows deception is catching up to him
Alphabet Inc. GOOG, -0.72% GOOGL, -1.02% fell 1% following a Wall Street Journal report that Google did not disclose a software glitch this past spring, leaving data from users of the Google+ social network exposed because of fear of reputation damage and regulatory inquiry.
ENSCO PLC’s stock ESV, +3.66% rose 3.7% after Rowan Cos. PLC RDC, +4.63% announced a merger valued at $12 billion. Shares of Rowan were up 1.9%.
Conagra Brands Inc. CAG, +3.16% shares gained 3.2% after UBS upgraded the stock to buy from neutral on the company’s long-term growth potential, which stems in large part from its $8.2 billion acquisition of Pinnacle Foods. Conagra’s price target was also raised to $40 from $38.
Kimberly-Clark Corp. KMB, +0.72% climbed 0.7%. Goldman Sachs downgraded the stock to neutral after analysts determined that its buy recommendation “has not been successful.” The 12-month price target was lowered $1 to $119.
What were other markets doing?
China’s major indexes in Shanghai SHCOMP, +0.34% and Shenzhen 399106, +0.00% closed down by more than 3.5%, as traders returned to work after a weeklong holiday, and as China’s central bank loosened reserve requirements.
European markets were down across the board as Italy fears weighed on sentiment.
Crude-oil CLK9, +0.52% prices edged lower, while gold GCM9, +0.49% settled weaker and the U.S. dollar index DXY, -0.04% gained marginally, proving to be headwinds for assets priced in the currency.