Stocks Open Mixed After Monday Rally
By Anna Hirtenstein
U.S. stocks edged higher Tuesday, suggesting markets will take a
breather after a bout of volatility in both shares and bonds.
The S&P 500 was flat in early trading after it surged on
Monday in its best day since June. The Nasdaq Composite Index was
down less than 0.1%, while the Dow Jones Industrial Average ticked
Investors say their focus is squarely on central bank officials
for cues on how monetary policy may shift down the road. That will
determine their appetite for government bonds and for
inflation-adjusted returns. A flood of easy money by the Federal
Reserve since the pandemic hit last spring has helped subdue
returns on bonds and fueled a rally in stock markets for much of
the past year.
This phenomenon seemed to halt in recent weeks: money managers
adjusted their portfolios in anticipation of an economic rebound
and a potential increase in inflation, prompting a selloff in
government bonds. Yields jumped last week as bond prices fell,
leading to jitters in stocks. Bond markets have since stabilized,
and stocks surged higher on Monday.
"We're just taking a breather after yesterday," said Fahad
Kamal, chief investment officer at Kleinwort Hambros.
"The state of the bond market is driving everything," he added.
"The central banks continue to be the real pivot in markets right
now: as long as they continue to buy enormous amounts of bonds in
the market, the upside move [in yields] is capped."
The yield on the 10-year U.S. Treasury bonds was relatively
unchanged at 1.445%, from 1.444% on Monday. Still, that is sharply
higher from this year's closing low on Jan. 4 of 0.915%.
The recent volatility in markets "shows how hostage we are to
policy remaining exactly where it is," said Georgina Taylor, a
multiasset fund manager at Invesco. "There is no real room for
policy tightening to take hold: we still need that to be supportive
of the economic recovery."
Investors will be assessing comments by Federal Reserve Gov.
Lael Brainard at an event starting at 1 p.m. ET for fresh cues on
how the central bank views the moves in bond markets and prospects
for higher inflation. On Monday, she didn't address the issues when
she spoke at another event. Fed officials have so far suggested the
climb in yields reflects expectations for an economic recovery.
"We think that the coming days and weeks will likely be
pivotal," and could see central banks taking steps beyond their
verbal interventions, said Peter Schaffrik, a global macro
strategist at RBC Capital Markets.
Ahead of the market opening, Zoom Video Communications jumped
close to 7% after it reported a surge in revenue and said it
expects continued rapid growth in 2021. Payments company Square
climbed more than 3% after it said its industrial bank has begun
Overseas, the pan-continental Stoxx Europe 600 ticked up
"We're absolutely seeing a shift toward value" in stock markets,
Mr. Kamal said. "European equities are beneficiaries of this, a lot
of major companies are value linked."
The selloff in European sovereign-debt markets also continued to
ease. The benchmark German bund yield ticked down to minus 0.319%,
after reaching as high as minus 0.216% last week.
Among European equities, Ryanair fell over 2% after the budget
airline said traffic in the month of February plunged 95%.
In Asia, most major benchmarks finished the day down. China's
Shanghai Composite Index and Hong Kong's Hang Seng both fell 1.2%.
An official at the People's Bank of China said he was worried about
risks emerging from inflated asset prices in international
financial markets and the domestic property sector, according to
analysts at Deutsche Bank.
South Korea's Kospi Index rose 1%, buoyed by the prospect of a
new pandemic relief spending package.
Write to Anna Hirtenstein at email@example.com
(END) Dow Jones Newswires
March 02, 2021 09:50 ET (14:50 GMT)
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