By Sue Chang and Mark DeCambre, MarketWatch
Bond market is closed for Columbus Day
The Dow Jones Industrial Average bounced back from earlier
losses to finish higher Monday, but the broader stock market closed
lower as fears over rapidly rising rates continued to weigh on
sentiment.
The bond market was closed in observance of Columbus Day
(http://www.marketwatch.com/story/why-monday-may-offer-a-respite-for-stock-market-investors-after-a-bruising-bond-rout-2018-10-05).
How did major benchmarks fare?
The Dow Jones Industrial Average rose 39.73 points, or 0.2%, to
26,486.78. The S&P 500 index fell 1.14 points to 2,884.43 and
the Nasdaq Composite Index shed 52.50 points, or 0.7%, to
7,735.95.
Defensive stocks drew bids, with consumer staples higher. One
measure of consumer staples, the Consumer Staples Select Sector
SPDR ETF (XLP) , rose 1.4%.
Monday's action comes after the Nasdaq logged its worst weekly
decline since March 23 and the S&P 500 logged its second
straight weekly decline
(http://www.marketwatch.com/story/us-stocks-look-poised-to-resume-yield-driven-stumble-2018-10-08)
as long-dated Treasury rates surged to their highest since 2011.
Bond prices fall as yields rise.
What drove the market?
A jump in government bond yields over the past several sessions
has perhaps signaled a new phase in postcrisis markets that have
enjoyed a protracted period of ultra-low yields.
Last week saw the yield on the 10-year U.S. Treasury note rise
17 basis points, representing its sharpest weekly advance since
February and taking it toward 3.23%, its highest level in about
seven years.
Read: 3 reasons why U.S. government bond yields are soaring
(http://www.marketwatch.com/story/3-reasons-why-us-government-bond-yields-are-soaring-2018-10-03)
Higher yields equate to steeper borrowing costs for corporations
and investors alike, and have caused a reassessment of equity
valuations, already deemed lofty by some measures. On top of that,
richer rates of so-called risk-free bonds can compete against
equities, which are perceived as comparatively riskier.
Climbing rates, however, have come against a solid backdrop for
the domestic economy, with a number of economic indicators
supporting the notion that the U.S. expansion continues apace.
Read:Sure, yields are rising--but it's the bond market's
velocity that threatens to throttle stocks
(http://www.marketwatch.com/story/sure-yields-are-risingbut-its-the-bond-markets-velocity-that-threatens-to-throttle-stocks-2018-10-07)
As for quarterly results, companies in the S&P 500 are
projected to post 10% earnings growth in 2019, according to
FactSet, offering more evidence of economic health.
Abroad, investors were also watching developments in Europe,
with the EU signaling in a letter Friday to Italy's economic
minister, Giovanni Tria, that Italy's budget targets are a source
of concern for the trading bloc
(http://www.marketwatch.com/story/european-commission-expresses-serious-concern-over-italy-budget-report-2018-10-06),
setting up a potential market-disrupting clash.
What were analysts saying?
The market was influenced by worries that U.S. economic growth
may be jeopardized by higher interest rates, although buying in
"oversold pockets" helped some stocks to recover, according to
Quincy Krosby, chief market strategist at Prudential Financial.
"Given that today is a federal holiday and the bond market is
closed means that there's less volume in today's market. This lends
itself to a market that can be skewed in either direction," she
said.
"The technical underpinnings of the equity markets argue on the
side of caution. Despite new highs by the S&P 500 and Dow
Industrials just a few days ago, the broad market continues to
deteriorate," said Bruce Bittles, chief investment strategist at
Baird, in a note. "Less than 50% of S&P 500 and Nasdaq stocks
are trading above their 50-day moving averages. Although the
popular averages remain in close proximity to record highs, the
number of NYSE issues hitting new 52-week lows doubled from the
previous week."
David Madden, market analyst at CMC Markets UK, said investors
are seeing the jump in the 10-year yield as a sign that it's time
to exit stocks as rates are likely to rise further, particularly
with the Federal Reserve expected to hike interest rates again in
December.
Which stocks were in focus?
Shares of Tesla Inc. (TSLA) dropped 4.4%, despite the
electric-car maker Sunday night saying that it has achieved its
goal of making the Model 3 sedan the safest car ever built
(http://www.marketwatch.com/story/tesla-says-its-model-3-has-lowest-probability-of-injury-of-any-car-tested-by-nhtsa-2018-10-07).
Read: Einhorn sees shades of Lehman in Tesla, says Musk knows
deception is catching up to him
(http://www.marketwatch.com/story/einhorn-sees-shades-of-lehman-in-tesla-says-musk-knows-deception-is-catching-up-to-him-2018-10-05)
Alphabet Inc.(GOOGL) (GOOGL) fell 1% following a Wall Street
Journal report that Google did not disclose a software glitch
(http://www.marketwatch.com/story/alphabet-shares-fall-on-report-of-covered-up-google-data-vulnerability-2018-10-08)
this past spring, leaving data from users of the Google+ social
network exposed because of fear of reputation damage and regulatory
inquiry.
ENSCO PLC's stock (ESV) rose 3.7% after Rowan Cos. PLC(RDC)
announced a merger
(http://www.marketwatch.com/story/ensco-and-rowan-cos-to-combine-in-deal-with-enterprise-value-of-12-billion-2018-10-08)
valued at $12 billion. Shares of Rowan were up 1.9%.
Conagra Brands Inc. (CAG) shares gained 3.2% after UBS upgraded
(http://www.marketwatch.com/story/conagra-stock-upgraded-on-growth-potential-from-pinnacle-deal-2018-10-08)
the stock to buy from neutral on the company's long-term growth
potential, which stems in large part from its $8.2 billion
acquisition of Pinnacle Foods. Conagra's price target was also
raised to $40 from $38.
Kimberly-Clark Corp.(KMB) climbed 0.7%. Goldman Sachs downgraded
the stock
(http://www.marketwatch.com/story/kimberly-clark-downgraded-because-its-buy-recommendation-has-not-been-successful-2018-10-08)
to neutral after analysts determined that its buy recommendation
"has not been successful." The 12-month price target was lowered $1
to $119.
(http://www.marketwatch.com/story/kimberly-clark-downgraded-because-its-buy-recommendation-has-not-been-successful-2018-10-08)
What were other markets doing?
China's major indexes in Shanghai and Shenzhen closed down by
more than 3.5%, as traders returned to work after a weeklong
holiday, and as China's central bank loosened reserve requirements
(http://www.marketwatch.com/story/asian-markets-lag-as-chinese-stocks-fall-after-weeklong-layoff-2018-10-07).
European markets were down across the board
(http://www.marketwatch.com/story/europe-stocks-under-pressure-italy-banks-off-sharply-2018-10-08)
as Italy fears weighed on sentiment.
Crude-oil prices edged lower
(http://www.marketwatch.com/story/oil-pulls-back-on-talk-us-could-offer-some-wiggle-room-on-iran-crude-sales-2018-10-08),
while gold settled weaker and the U.S. dollar index gained
marginally
(http://www.marketwatch.com/story/dollar-gains-as-italian-budgetary-drama-weighs-on-the-euro-2018-10-08),
proving to be headwinds for assets priced in the currency.
(END) Dow Jones Newswires
October 08, 2018 16:32 ET (20:32 GMT)
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