Stocks pare gains but end slightly higher as 10-year Treasury yield tops 3%

7 Jun 2022

MarketWatch

Stocks pare gains but end slightly higher as 10year Treasury yield tops 3

U.S. stocks finish with gains on Monday as investors await the next big inflation report later this week.

All three major U.S. stock indexes finished higher on Monday, but trimmed earlier gains as the 10-year Treasury yield breached 3% ahead of the next big inflation report later this week.

What happened

The Dow Jones Industrial Average DJIA, +0.05% finished up by 16.08 points, or less than 0.1%, at 32,915.78 after periodically dipping into negative territory. The blue-chip gauge was up 336 points at its session high.
The S&P 500 SPX, +0.31% closed up by 12.89 points, or 0.3%, at 4,121.43.
The Nasdaq Composite COMP, +0.40% rose 48.64 points, or 0.4%, to end at 12,061.37.

Stocks had fallen sharply on Friday, dragging major indexes to weekly losses. The Dow declined 0.9% last week, while the S&P 500 dropped 1.2% and the Nasdaq Composite shed 1%. The Dow has finished down nine of the past 10 weeks; the S&P 500 and Nasdaq have been down eight of the past nine weeks.

What drove markets

Analysts have been assessing whether stocks have dropped enough, given the Fed’s desire to stamp out inflation by lifting interest rates. The 10-year Treasury yield TMUBMUSD10Y, 3.049% rose 8.2 basis points to 3.037% as investors await May’s consumer-price index report on Friday. That’s the highest yield since May 9, based on 3 p.m. levels, according to Dow Jones Market Data.

“Market pricing of Fed rate hikes has cooled recently on market expectations that inflation is bound to come down. This spurred a rebound in equities from 2022 lows and stopped the U.S. dollar rally in its tracks. In other words, markets have moved as if inflation is yesterday’s story. We disagree,” strategists at BlackRock Investment Institute wrote in a note.

“Sure, core inflation is bound to come down from 40-year highs. But we see it as persistent and running above the Fed’s 2% target for years to come,” they wrote. “We see short-term risk of a snap back in the market’s rate expectations as data show the persistence of inflation — and as the Fed keeps talking tough on inflation.”

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That’s also a setup for continued market volatility, they and others said.

“The inflation picture is going to be uncertain for the next six to 12 months so the Federal Reserve and the market are going to be lurching back and forth between competing narratives,” said Derek Tang, an economist at Monetary Policy Analytics in Washington. “Those narratives are whether inflation is starting to come down or good/lower inflation prints are just head fakes,” Tang said via phone.

See: A ‘pinch’ for the stock market but good news for the Fed: What investors need to know about a strong U.S. dollar

Markets also were paying attention to signs the White House is loosening its stance on tariffs. U.S. Commerce Secretary Gina Raimondo said household goods and bicycles “may make sense” as products to ease levies. Solar companies including SunRun Inc. RUN, +5.94% rose after The Wall Street Journal reported there won’t be any new tariffs imposed on solar imports for two years.

Read more: Here are the stocks getting a ‘tailwind’ from White House’s pause on solar tariffs

Companies in focus

Shares of Twitter Inc. TWTR, -1.49% finished lower by 1.5% after Tesla Inc. TSLA, +1.60% CEO Elon Musk said in a letter that he could terminate the merger deal if the social-media company continues to refuse to provide the information he has requested regarding spam and fake accounts. Twitter responded to Musk’s letter, saying in an emailed statement to MarketWatch that it “has and will continue to cooperatively share information” with Musk.
The largest U.S. company by market capitalization, Apple Inc. AAPL, +0.52%, introduced its new MacBook Air and MacBook Pro models during the keynote address of its annual WWDC developer event Monday. Shares rose 0.5%.
JetBlue Airways Corp. JBLU, +2.10% boosted its offer for Spirit Airlines Inc. SAVE, +7.04% on Monday in the latest move in the three-way battle for the discount airline. Spirit has been trying to fight off the JetBlue bid so it can go ahead with an earlier plan to merge with Frontier Group Holdings Inc. ULCC, +4.49%, and has said it fears a JetBlue deal would be blocked by regulators. Spirit shares finished 7% higher, while JetBlue shares advanced 2.1% and Frontier shares gained 4.5%.
Amazon.com Inc.’s AMZN, +1.99% 20-for-1 stock split has taken effect. The stock closed Friday at a pre-split adjusted $2,447, and finished 2% higher on Monday at $124.79 a share. The last time the stock traded below the four-digit level pre-split was October 2017. The split is Amazon’s first in 23 years.
Class A shares of UnderArmour Inc. UAA, +0.27% closed up by 0.3% despite the fact that S&P Dow Jones Indices said it was booting the athletic apparel and gear maker from the S&P 500. The company and IPG Photonics Corp. IPGP, +2.06% are moving down from the large-cap benchmark to the S&P MidCap 400, S&P Dow Jones Indices said late Friday. Shares of Keurig Dr Pepper Inc. KDP, +5.07% closed up by 5.1% and ON Semiconductor Corp. ON, +4.88% climbed 4.9%, as the companies will replace Under Armour and IPG Photonics in the S&P 500.

What other assets did

The ICE U.S. Dollar Index DXY, +0.27%, a measure of the currency against a basket of six major rivals, was up 0.3%.
Oil futures ended slightly lower. West Texas Intermediate crude for July delivery CL00, +0.28% fell 37 cents, or 0.3%, to settle at $118.50 a barrel on the New York Mercantile Exchange after trading at a session high of $121.
Gold futures GC00, -0.02% closed down by 0.3%, settling at $1,843.70 an ounce.
Bitcoin BTCUSD, -0.12% rose 4.4% to trade at $31,260.
The Stoxx Europe 600 SXXP finished 0.9% higher, while London’s FTSE 100 UKX closed up by 1%.
The Shanghai Composite SHCOMP, +1.28% ended 1.3% higher on Monday, while the Hang Seng Index HSI, +2.71% advanced 2.7% in Hong Kong and Japan’s Nikkei 225 NIK, +0.56% gained 0.6%.

— Steven Goldstein contributed to this article.