By Vivien Lou Chen and William Watts
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.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.27% 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 /zigman2/quotes/210599714/realtime SPX +1.73% closed up by 12.89 points, or 0.3%, at 4,121.43.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +2.09% 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 /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.67% 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.”
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.
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. /zigman2/quotes/205021014/composite RUN +1.63% rose after The Wall Street Journal reported there won’t be any new tariffs imposed on solar imports for two years.
Companies in focus
Shares of Twitter Inc. /zigman2/quotes/203180645/composite TWTR +0.73% finished lower by 1.5% after Tesla Inc. /zigman2/quotes/203558040/composite TSLA +4.68% 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.