Stocks trade blended, Treasury yields prolong gains

Stocks mostly rose, and Treasury yields rose again on Monday morning after Congress moved towards adopting another major COVID-19 relief package.

The S&P 500 and the Dow each advanced, with the latter adding more than 200 points, or 0.9%, during the intraday session. The Nasdaq reversed earlier losses to trade higher, stabilizing after the index closed a third consecutive weekly loss last week amid a drop in tech and growth stocks.

The consumer discretionary, financials and materials sectors led the gains of the S&P 500, while information technology and real estate lagged.

Treasury yields rallied across the curve and the benchmark 10-year yield hit a one-year high of over 1.61% after the US Senate passed a 1, $ 9 trillion over the weekend, with the additional stimulus likely to boost the pace of economic recovery.

The United States House of Representatives is set to vote on Tuesday on the Senate’s version of the stimulus bill, which includes $ 300 a week in improved federal unemployment benefits through early September, $ 350 billion. dollars in state and local aid and $ 1,400 in stimulus checks to most Americans, albeit under tighter income restrictions than those included in the previous version of the bill in the House. The Senate bill, which passed after an online party vote, is expected to be approved in the House and signed by President Joe Biden before the March 14 deadline, in order to renew allowances pandemic era federal unemployment rates from mid-March to early September. .

Prospects for a strong recovery enabled by the ongoing vaccine rollout as well as historic levels of fiscal and monetary stimulus have simultaneously pushed growth forecasts up sharply, while raising concerns that the increase is too rapid. inflation. Nervousness caused by an eruption of price pressures and rising interest rates recently caused stock market volatility. However, some strategists have suggested that these fears may be overblown and that the rate hike should actually be viewed more positively as a sign of a strengthening economic environment.

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“Stocks often struggle when interest rates rise sharply, especially when pulled by real rates,” Goldman Sachs equity strategist David Kostin wrote on Friday. “Tense investor positioning has exacerbated the recent strong reaction in equity markets, in particular as hedge funds and retail investors have held large positions in long-dated stocks that are particularly sensitive to interest rates.”

However, “even though the recent rate hike has weighed heavily on stock prices, the pace of inflows into equity funds in recent weeks has accelerated from the start of the year,” added Kostin. “The rotation in equity funds has favored the most favored strategies that benefit from accelerated economic growth.”

Namely, cyclical sectors such as energy and financials have outperformed since the start of the year and particularly in recent weeks, and shares of companies in high-contact sectors, notably air transport and the accommodation, have resurfaced after a difficult 2020.

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10:43 a.m. ET: Federal Reserve extends liquidity facilities for paycheck protection through end of June

The Federal Reserve announced Monday that it will extend a pandemic-era liquidity facility intended to help provide relief to small businesses under the paycheck protection program until June 30. This marked a three month extension from the facility’s previous expiration date.

However, other emergency facilities under the Fed, including the Commercial Paper Funding Facility, the Money Market Mutual Fund Liquidity Facility, and the Prime Broker Credit Facility will retain their due date. expired on March 31 due to low usage in recent months.

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9:30 a.m. ET: Mixed open equities, Nasdaq trades lower as S&P 500 and Dow rise

Here’s where the markets were trading shortly after the opening bell Monday morning:

• S&P 500 (^ GSPC): +6.91 points (+ 0.16%) to 3848.03

• Dow (^ DJI): +134.64 points (+ 0.43%) at 31,630.94

• Nasdaq (^ IXIC): -35.71 points (-0.24%) to 12,890.28

• Gross (CL = F): + $ 0.41 (-0.62%) to $ 65.68 per barrel

• Gold (GC = F): – $ 7.20 (-0.42%) to $ 1,691.30 per ounce

• 10-year cash flow (^ TNX): + 3.1bp for a yield of 1.585%

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9:06 a.m.ET: “ We remain of the view that cyclical stocks continue to lead upward, but we are also seeing some broadening of market participation ”: JPMorgan

In recent weeks, investors have aggressively rotated tech stocks to cyclical names that were hit the hardest last year during the pandemic. Rising interest rates also put increased pressure on high valuations of growth stocks. That said, given the big drop in tech stocks recently, those names could be about to start stabilizing, according to at least one strategist.

“The recent market volatility has largely been a function of a painful underlying market rotation due to strong momentum and expensive growth stocks as inflation rates and expectations have undergone a sharp adjustment.” , JPMorgan strategist Dubravko Lakos-Bujas wrote in a note Monday morning. “We see higher rates largely as a function of an earlier and stronger than expected economic recovery and which supports our outlook for affirmative action.”

“We remain of the view that cyclical stocks continue to lead higher as the economic cycle strengthens, but we are also seeing some broadening of market participation given the significant reduction in risk that has occurred. in high growth, high momentum stocks, ”he said. .

He added that the price-earnings multiple of momentum stocks had “converged significantly” to that of the wider market, having been high at the end of 2020.

“In this process, growth stocks have also been significantly reduced at risk, decoupled from the momentum factor and now appear much less vulnerable (eg even to rising bond yields),” he said.

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7:18 a.m. ET Monday: Stock futures indicate lower open

Here’s where the markets were trading before the opening bell:

• S&P 500 Futures (ES = F): 3,819.25, down 19.75 points or 0.51%

• Dow Futures (YM = F): 31,457.00, down 8 points or 0.03%

• Future Nasdaq (NQ = F): 12,489.50, down 174.25 points or 1.38%

• Gross (CL = F): $ 66.26 per barrel, + $ 0.17 (+ 0.26%)

• Gold (GC = F): $ 1,683.80 per ounce,-$ 14.70 (-0.87%)

• 10-year cash flow (^ TNX): +4.2 bp for a yield of 1.596%

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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