Stocks Slip in Large Tech Weights; Bond Yields Rise: Markets Wrap Up

(Bloomberg) — U.S. stocks fell on Monday, along with mega-cap tech names, while yields on U.S. Treasuries rose amid a surge in corporate output.

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The S&P 500 fell 1.9% on Friday after paring its longest loss since February. The Nasdaq 100 fell 0.3%. Big tech names including Microsoft Corp and Apple Inc were dragged down on the benchmark gauges.

PacWest Bancorp rose 18% on Friday, extending a brisk rally, while other U.S. regional banks struggled to recover from a sell-off spurred by the recent decline of many lenders. The dollar fell for the fifth day in a row. The yield on the policy-sensitive two-year Treasury rose to 3.98% on the back of a syndicated desk brace for corporate bond sales volume of $35 billion this week.

U.S. stocks have traded sideways since early April as feared corporate earnings offset concerns about the economic slowdown and the health of regional banks. Firm jobs data on Friday supported bets that the Federal Reserve will keep rates high for longer, dampening consumer spending, corporate profits and bank balance sheets.

“Although the Federal Reserve may need to raise rates more aggressively in an effort to end the era of ‘free money’, economic growth has yet to confirm the arrival of a recession,” John Stoltzfus, chief investment strategist at Oppenheimer & Co., wrote in a note.

“If activity in the regional banking sector slows, along with potential regulatory efforts to slow growth, we may need to keep raising rates longer than many would like, pushing inflation toward its target level,” he said, allowing the Fed to ease off the “brake pedal” going forward.

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Rates on swap contracts linked to Fed meetings suggest at least two quarter-point cuts by the end of the year. Consumer-inflation data could provide further clues on the path of rates on Wednesday.

“Unless we see a sharp turnaround in the inflation numbers, the central bank should be very comfortable with where policy rates are right now,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, said on Bloomberg Television.

While the central bank has signaled it may pause its tightening cycle, its counterpart in the euro zone has yet to do so, muddying the outlook for economic growth and corporate profits.

The European Central Bank will continue to raise interest rates amid “very high” core inflation, governing body member Klaus Knott said on Sunday. ECB President Christine Lagarde last week raised the central bank deposit rate by a quarter of a point to 3.25%, after three moves to double that, signaling that more hikes are on the way.

There will be concerns

While stocks bounced back on Friday, investors still have more to worry about. The rout in U.S. bank stocks has the S&P 500 financial index on the verge of falling below its 2007 peak.

Meanwhile, Treasury Secretary Janet Yellen sees “no good options” in Washington to resolve the debt ceiling impasse without Congress raising the ceiling. He also warned that invoking the 14th Amendment would trigger a constitutional crisis.

“We see an opportunity for Treasuries’ liquidity to remain stable through mid-June and slightly beyond,” Overseas-China Banking Corp. strategists Francis Cheung and Christopher Wong wrote in a note. However, “irregularity in fund receipts and disbursements should keep investors cautious,” they said.

Elsewhere in the markets, oil gained as investors assessed a complicated outlook for global demand after volatile trading. Bitcoin falls below $28,000.

Highlights of this week:

• US Total Inventories, Monday

• US President Joe Biden is scheduled to meet with congressional leaders on Tuesday about the debt ceiling

• New York Fed President John Williams speaks at the Economic Club of New York on Tuesday

• US CBI, Wednesday

• China PPI, CBI, Thursday

• UK BOE rate decision, industrial production, GDP, Thursday

• US PPI, Initial Jobless Claims, Thursday

• A seven-member group of finance ministers and central bank governors will meet in Japan on Thursday

• American University of Michigan Consumer Sentiment, Friday

• Federal Reserve Governor Philip Jefferson and St. Louis Fed President James Bullard will participate in a panel discussion on monetary policy at Stanford University on Friday.

Some key movements in the markets:

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• The S&P 500 was little changed at 10:07 a.m. New York time

• The Nasdaq 100 fell 0.3%

• The Dow Jones industrial average fell 0.2%

• The Stoxx Europe 600 rose 0.2%

• The MSCI world index rose 0.2%

Coins

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.2% to $1.1039

• The British pound was up 0.1% at $1.2653

• The Japanese yen fell 0.1% to 134.97 per dollar

Cryptocurrencies

• Bitcoin fell 3.7% to $27,870.05

• Ether fell 3.2% to $1,858.87

Bonds

• The yield on 10-year Treasuries rose six basis points to 3.50%

• Germany’s 10-year yield rose four basis points to 2.33%

• Britain’s 10-year yield rose 13 basis points to 3.78%

materials

• West Texas Intermediate crude rose 2.2% to $72.93 a barrel.

• Gold futures rose 0.4% to $2,031.90 an ounce

This story was produced with the help of Bloomberg Automation.

–With assistance from Michael Misika and Tasia Sipahuter.

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