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U.S. stocks bounced higher Monday after the S&P 500 touched a new intraday low for the year and the yield on the U.S. 10-year Treasury note hit 3% for the first time in more than three years.
The S&P 500 rose 23.45 points, or 0.6%, to 4155.38. The Dow Jones Industrial Average added 84.29 points, or 0.3%, to 33061.50. The Nasdaq Composite Index jumped 201.38 points, or 1.6%, to 12536.02.
The indexes traded lower for much of the session but turned higher in the last hour. The S&P 500 fell as low as 4062.51, its lowest intraday level since May 2021. That seemed to be enough to spur on value buyers, Instinet executive director Frank Cappelleri said.
“Buying weakness…has been one of the few long strategies that has proven to be successful so far this year,” he said.
The afternoon rally was a welcome respite for equities investors in what has been a rough year. The S&P 500 fell 8.8% in April and the Dow industrials declined nearly 5%, the worst monthly performance for the indexes since March 2020. The Nasdaq Composite retreated more than 13% last month, its worst showing since October 2008. Tech stocks are particularly sensitive to higher interest rates.
With four months in the books, the stock market is putting in its worst performance in decades. The S&P 500, down 13% so far this year, has had its worst start to a year since 1939, according to Dow Jones Market Data.
“It’s a market that is jittery and nervous,” said Sebastien Galy, a macro strategist at Nordea Asset Management. “It has been fed liquidity for a long time, and this has been built into expectations for stocks,” he said, a situation that is now changing as central banks tighten monetary policy.
Investors are awaiting the Federal Reserve’s policy meeting Wednesday for more signals on the pace of monetary tightening, with markets anticipating a rate increase of half a percentage point to counter the highest inflation in decades. The war in Ukraine and a Covid-19 outbreak in China threaten to further snarl supply chains and boost prices.
Changing Fed policy is altering the market math for investors, said Merk Investments analyst Nick Reece. For the first time in a long time, rising yields and falling bond prices are putting them on a more competitive footing with equities in investors’ eyes in terms of returns, he said.
“It’s reducing some of the ‘TINA’ effect that’s underpinned the bull market since 2009,” Mr. Reece said. “TINA” is an acronym for “there is no alternative,” an argument that in a world of low interest rates, investors could only find acceptable returns in stocks.
The yield on the benchmark 10-year Treasury briefly touched 3% Monday, its first time at that level since late 2018. It settled at 2.995%, up from 2.885% on Friday. The U.S. dollar held on to its recent gains, with the WSJ Dollar Index rising 0.4% after its biggest monthly jump in a decade in April.
Among individual stocks, shares of Spirit Airlines fell $2.21, or 9.4%, to $21.40 after the company rejected an acquisition offer from JetBlue Airways, sticking with an existing plan to merge with Frontier Group. JetBlue shares added 29 cents, or 2.6%, to $11.30 while Frontier fell 40 cents, or 3.8%, to $10.21.
Shares of Moody’s slid $15.35, or 4.9%, to $301.13 after the credit rating company said its profit fell by about one-third as costs rose.
Earnings season has been reasonably strong so far, with more than 80% of companies that have reported to date beating analysts’ expectations, according to Refinitiv. Stocks fell last month despite the robust reports, due to nerves about the months ahead, investors said.
Oil prices slid early but recovered their losses and then some, with U.S. crude up 0.5% at $105.17 a barrel. European Union officials are working on a proposal to sanction Russian energy. Some observers are skeptical it will pass since it requires unanimous support from EU members, many of whom rely on Russian energy, according to analysts at Nordic bank SEB.
Traders also are monitoring lockdowns in China and looking ahead to a meeting of the OPEC+ alliance later this week, where members are set to discuss its supply agreement.
The pan-continental Stoxx Europe 600 declined 1.5%. Data releases showed German retail sales fell in March, when economists expected an increase and consumer confidence in the EU declined more than expected. The U.K. stock market was closed for a holiday.
In Asia, most major benchmarks edged down moderately. South Korea’s Kospi fell 0.3%, and Japan’s Nikkei 225 declined 0.1%. Markets in China and Hong Kong were closed for the Labor Day holiday.
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