Dow books 4-day winning streak, but S&P 500, Nasdaq end lower as tech shares stumble

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By Mark DeCambre and Joy Wiltermuth

Small-caps jump about 1.5% Monday

The Dow industrials closed modestly higher Monday, booking a fourth straight day of gains, as energy and bank shares rose with rallying Treasury yields. But the move in rates also caused headwinds for rate-sensitive areas of the market, including technology.

What did major indexes do?

On Friday, the Dow rose 33 points, or 0.1%, to 34798, the S&P 500 increased 7 points, or 0.15%, to 4455, while the Nasdaq dropped 5 points, or 0.03%, to 15048.

What drove markets?

Climbing bond yields served as a catalyst for stocks Monday, with the benchmark 10-year Treasury rate briefly topping 1.5%, its highest since June, according to FactSet. Yields and prices move in opposite directions.

Rising yields can increase the discount rate for tech-related stocks and highly valued sectors, while helping to boost shares of financials whose business models benefit from higher longer-end rates. Goldman Sachs Group Inc. (GS) shares advanced 2.3%, while the Financial Select Sector SPDR ETF(XLF) rose 1.3%. The U.S. oil benchmark CLX21 settled at $75.45 a barrel on Monday, near a 3-year high

An energy crisis sweeping the globe was another catalyst for equities on Monday. Power shortages led to forced factory production cuts in China, while in the U.K., a shortage of truck drivers led to hoarding and declining inventories at gas stations.

Analysts at Goldman Sachs hiked their oil-price forecast to $90 a barrel, citing the impact of what it said was the most bullish hurricane in U.S. history on supply. The Energy Select Sector SPDR ETF (XLE) jumped 3.4% as oil prices continued to press higher.

“That’s because of supply constraints and strong demand,” said Kent Engelke, chief economist strategist at Capitol Securities Management, adding that unlike the Arab oil embargo of the 1970s, current energy shortages follow moves by Western governments to cut carbon emissions and curtail the fossil fuel industry, including by making it “prohibitively expensive” for banks to lend in the sector.

“But the technology is not there yet,” Engelke said of solar and wind energy alternatives.

Energy disruptions have highlighted what’s been a growing issue for the global economy, namely that supply hasn’t recovered as fast as demand in a variety of markets. Costco Wholesale (COST) last week said it imposed limits on purchases of toilet paper and water.

Orders for durable goods surged 1.8% in August, largely thanks to more demand for Boeing jetliners, but continued supply shortages held back auto makers and remained a drag on the U.S. economic recovery. Economists surveyed by The Wall Street Journal had forecast a 0.6% rise.

Investors continued to cast a wary eye on the impact of China Evergrande’s debt troubles on the world’s second-largest economy, while elections in Germany, the No. 1 European economy, have so far failed to produce a decisive result in what’s expected to be months of coalition talks.

The clock also has been ticking for Congress to pass a funding measure to avoid a government shutdown at midnight Thursday, with gridlock in Washington also raising concerns about a potential U.S. default this fall.

See:What happens if the U.S. defaults on its debt?

Wall Street also heard from a number of Federal Reserve officials. Chicago Fed President Charles Evans, in a speech Monday morning, said he was more worried that the economy wouldn’t produce enough inflation rather than run too hot.

New York Fed President John Williams said he doesn’t expect the recent surge in inflation to last, predicting it will fall to around 2% next year, but also said a reduction in the central bank’s massive $120 billion in monthly bond purchases may be soon warranted.

Read: Fed Williams predicts U.S. inflation rate will cool to 2% in 2022

But Fed Gov. Lael Brainard struck a more dovish tone Monday, sayings the central bank should maintain low interest rates and that the spike seen in inflation this year was transitory and the labor market was far from healed.

Investors also were keeping an eye on Europe. “The lack of a clear winner in Germany’s election combined with a new batch of speeches from most central bankers may slow the rally down,” said Pierre Veyret, technical analyst at ActivTrades, in a note. “In addition, investors’ eyes are cautiously monitoring the situation in China where both the energy and liquidity crises are worsening, increasing worries of a knock-on impact on other economies.”

In public health news, chief executive of Pfizer Inc. (PFE) said the company is expecting to submit data from late-stage trials of its COVID-19 vaccine in 5- to 11-year-old children to the U.S. Food and Drug Administration within days, raising hopes that another key patient group will soon be eligible for shots.

Which companies were in focus?

How did other assets fare?

Steve Goldstein contributed reporting

-Mark DeCambre

 

(END) Dow Jones Newswires

09-27-21 1617ET

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