September 30, 2023

Tricia Oak

Business & Finance Excellency

Dow rises, tech shares drag down broader market as 10-year Treasury yield tops 1.5%

U.S. stocks were split on Monday as Treasury yields rose and traders braced for the final week of a volatile September.

The S&P 500 slipped by 0.28% to 4,443.11 and the Nasdaq Composite shed 0.52% to close at 14,969.97 as tech stocks struggled. The Dow Jones Industrial Average rose by 71.37 points to 34,869.37 as energy stocks and bank shares pushed higher.

The divergence for the major averages came as Treasury yields rose. The 10-year Treasury yield increased on economic optimism and inflation fears, briefly topping 1.5% on Monday. That’s the highest since June and up from 1.30% at the end of August.

“We believe that these [bond market] moves have provided the spark for another ‘Value Rip’ across equity markets. In our view, the direction of longer-term interest rates should remain the #1 driver of market returns, sector rotation & thematic performance in the weeks ahead,” Chris Senyek of Wolfe Research said in a note to clients.

The economic recovery trade was also supported by stronger-than-expected reading for durable goods orders on Monday.

Major tech stocks including Alphabet, Apple and Nvidia were lower in Monday’s session, weighing on the S&P 500 and Nasdaq. Tech stocks are seen as sensitive to rising yields because increased debt costs can hinder their growth and higher rates can make their future cash flows appear less valuable.

But stocks linked to the economic comeback increased as tech shares fell with U.S. Covid cases continuing to roll over.

U.S. cases averaged about 120,000 per day over the last week, according to data compiled by Johns Hopkins University, down from a 7-day average of more than 166,000 cases at the peak of this latest wave in early September. Pfizer CEO Albert Bourla said on Sunday that he thought the U.S. could return to normal “within a year” though annual vaccinations might be needed.

Carnival Corp rose 3.7% and United Airlines added 0.6%. Shares of Boeing jumped 1.3%.

The rise in yields appeared to boost financial stocks on Monday, with the KBW Bank Index climbing 2.9%. Shares of Goldman Sachs and JPMorgan Chase rose more than 2%, making them some of the best performers in the Dow.

Another bright spot for the market was energy, with stocks like Exxon Mobil and Occidental Petroleum climbing as WTI crude continued its September run, topping $75 a barrel. Natural gas prices also rose on Monday as investors monitored concerns of an energy shortage in Europe.

The moves for energy show there are “concerns over supply in both the crude oil and natural gas markets,” said Adam Karpf, a portfolio manager and managing director at CIBC Private Wealth. “We’ve talked in the past about this really being a demand-driven recovery and rally with the reopening trade, and so that is part of what’s going on, but I think the most recent uplift is also a function of supply concerns.”

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Stocks pulled back early last week amid a slew of concerns from the debt crisis of China’s real estate giant Evergrande, to the Federal Reserve’s signal on rollback in monetary stimulus, and to Beijing’s crackdown on cryptocurrencies.

The major averages managed to wipe out those losses and eke out small gains for the week, but all three are still on track to finish down for the month.