Dow clings to gain as energy and bank stocks rise, but S&P 500 and Nasdaq under pressure

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By Mark DeCambre and Joy Wiltermuth

Small-caps rise 1.6% Monday

The Dow industrials clung to a modest gain Monday afternoon as energy and bank shares rose, aided by a rally in Treasury yields. But the move in rates also was causing headwinds for rate-sensitive areas of the market, including technology.

What are major indexes doing?

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’s driving markets?

A move in yields was serving as catalyst for stocks Monday, with a renewed selloff for the benchmark 10-year Treasury pushing its rate briefly back above 1.5% for the first time since late 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 1.4%.

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 3.5% as oil prices continued to press higher.

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.

There are a number of Federal Reserve officials due to speak this week. 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

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 are in focus?

How are other assets faring?

Steve Goldstein contributed reporting

-Mark DeCambre

 

(END) Dow Jones Newswires

09-27-21 1414ET

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