Stock Market Today: Stocks Rally Into Close as Key Bond Yield Passes 3%

Buyers stepped in after a steep selloff on Friday, which saw the Dow fall almost 3%, the S&P 500 shed more than 3%, and the Nasdaq tumble more than 4%.

The general concerns that still linger: the Federal Reserve is adamant about bringing down high inflation by lifting short-term interest rates and reducing its bondholdings, which lowers bond prices and lifts their yields. That isn’t new to investors, but the market is still trying to figure out how fast the Fed will go and how quickly it will reduce its balance sheet, a process known as quantitative tightening.

China’s zero-tolerance policy for the spread of Covid-19 is causing some economic activity to shut down, with both its services and manufacturing purchasing managers’ indexes coming in below 50, the level that separates a growing economy from a shrinking one, in March. Slower Chinese growth is already causing some companies to warn investors about second-quarter results, with

Apple

(ticker: AAPL) saying it could see a $4 billion to $8 billion sales hit in the quarter because of limited supply from China. 

“[Economic] growth concerns have been compounded by China’s ongoing struggles to contain COVID-19,” wrote Mark Haefele, chief investment officer of global wealth management at UBS. 

With markets having digested some of these developments, it isn’t necessarily a surprise to see stocks jump a bit Monday.

“All this negativity and the calendar may just be what we need to set up for a bounce in the near-term,” wrote New York Stock Exchange strategists. 

It might also seem puzzling that tech stocks bounced while bond yields jumped, too.

The 10-year Treasury yield has climbed to 3%, a new pandemic-era closing high. The rise in the yield reflects average annual inflation expectations over the next 10 years of just under 2.9%. Investors often demand a higher rate of return than the inflation rate, and that’s finally starting to show up in the bond’s yield.

Usually tech stocks struggle when the yield rises. But the selling in tech was already worse than for other sectors on Friday, so tech bounced back Monday.

That’s the near-term.

The stock market—tech included—has a long way to go before stocks will see sustained gains. The S&P 500 is still 10% below its March 29 level, which marked a multi-month peak. It’s still below its 50-day moving average, indicating that market participants are still not comfortable buying stocks at levels consistent with their recent trend. The Nasdaq is also below its 50-day moving average.

“With the SPX coming off one of its worst months in the last half century…with the specter of aggressive rate hikes in the near future, the mood isn’t exactly hopeful,” wrote Frank Cappelleri, chief market technician at Instinet. 

Sentiment on the market remains low right now, as appetite to buy stocks just hasn’t fully rebounded yet. A survey of sentiment for individual investors shows a 13-week average that is close to a multi-decade bottom, according to 22V Research. “Sentiment readings remain depressed as investors work through uncertainty tied to U.S. monetary policy, European growth, and China COVID lockdowns and stimulus,” wrote Dennis DeBusschere, founder of 22V Research. 

The Fed makes its decision on how quickly to raise interest rates—which it will likely do—this Wednesday afternoon.

“There will be some clarification on the U.S. policy front this week, setting the backdrop for another potential positive narrative shift,” DeBusschere wrote. 

Even though markets already expect Fed Chair Jerome Powell to strike a hawkish tone, one that indicates the definitive intention to bring rates higher, he is likely to stick firmly to that tone. That’s because, if he sounds dovish — the opposite — interest rates may move down in response, which is not what the Fed wants, wrote Tom Porcelli, economist at RBC. 

Here are six stocks on the move Monday:

Amazon.com

(AMZN) initially dropped, then gained 0.2% after the stock fell sharply Friday following a weaker-than-expected sales forecast for the second quarter.

Apple stock was down, before ending up 0.2%. The European Commission issued a formal complaint against the company for abusing its position in the mobile-wallets market. Shares declined 3.7% on Friday after the tech giant issued a cautious outlook for the June quarter.

Global Payments

(GPN) stock dropped9.2% after the company reported a profit of $2.07 a share, beating estimates of $2.04 a share, on sales of $2.16 billion, above expectations for $1.95 billion. 

ON Semiconductor

(ON) stock gained 6.7% after the company reported a profit of $1.22 a share, beating estimates of 17 cents a share, on sales of $1.95 billion, above expectations for $1.91 billion. 

Berkshire Hathaway
’s
Class B shares (BRK.B) fell 1.6% after the conglomerate led by Warren Buffett reported first-quarter operating earnings after taxes of $7 billion, up less than 1% from the year-earlier period, as the company scaled back the repurchase of its shares as the stock price rallied.

American depositary receipts of

NIO

(NIO) rose 4.7% after deliveries for its electric vehicles in April fell from the month earlier.

Write to Joe Woelfel at [email protected] and Jacob Sonenshine at [email protected]