Stocks fell on Monday, with technology stocks under more pressure as investors weighed the risks that higher inflation during the pandemic recovery might drag on high-growth names.
The Dow erased earlier gains to end lower, after the index set an intraday record of more than 35,000 during the session. The Nasdaq sank by 2.6% for its worst day since March, and the S&P 500 also ended lower.
Treasury yields were slightly higher across the long end of the curve, with the benchmark 10-year yield hovering below 1.6%. West Texas Intermediate crude oil prices (CL=F) and gasoline futures (RB=F) gained after the Colonial Pipeline, a top U.S. fuel pipeline operator, temporarily cut off its fuel lines after a cyberattack.
Elsewhere, Ether (ETH-USD), the token built on the Ethereum blockchain, set an all-time high of more than $4,000 before paring advances, giving back some gains after a rally that doubled prices for the second-largest cryptocurrency since the beginning of April. Bitcoin (BTC-USD) prices fell, dipping below $56,000.
Investors have been focused on the prospects of inflation during the economic recovery coming out of the coronavirus pandemic, with a surge in demand during reopenings apt to drive a surge in prices. This could in turn eventually prompt the Federal Reserve to tighten policies, and taken together, would risk weighing on the valuations of longer-duration growth stocks like those of technology companies especially.
Friday's sharply disappointing jobs report at least temporarily assuaged traders' concerns, with the miss viewed as adding fuel to policymakers' assertions that a full economic recovery remains a ways off. But with commodity prices advancing and a number of major companies citing rising input and end-user prices due to supply and demand mismatches, inflationary concerns are set to remain a key theme for investors to watch in the coming months.
The U.S. Bureau of Labor Statistics' April consumer price index (CPI) due out Wednesday and producer price index (PPI) on Thursday will show the latest change in prices for consumers and suppliers, with both indexes expected to show a marked jump over last year's pandemic-depressed levels as demand resurges during the recovery.
"Before the pandemic, monthly CPI releases tended to pass without much comment. Now they will be scoured for any evidence of a post-pandemic jump in inflation," Neal Shearing, group chief economist for Capital Economics, wrote in a note Monday. He said investors should watch for three main themes in these reports and in other near-term data.
"The first is evidence of what might be termed 'opening up' inflation. This is likely to appear in goods and services for which there is a surge in demand as restrictions are lifted such as hotels, restaurants, airfares and clothing," he said. "The extent of pent-up demand in these areas means that, even in the best of times, supply might struggle to keep pace."
"The second is evidence of 'opening up' disinflation," he added, with emphasis his. "Some goods, including IT equipment and groceries, saw sharp increases in demand and prices as people were forced to stay at home. It follows that these components should see the reverse of 'reopening inflation.'"
"The final area to watch is evidence of 'commodities-related inflation.' Oil prices have recovered from their slump at the start of the pandemic and metal and grain prices have surged far above pre-pandemic levels," Shearing said. "These developments are already boosting inflation and will continue to do so in the near term. The extent to which they exert further upward pressure on inflation beyond the next six months or so will depend on whether the increase in commodity prices is sustained."
4:02 p.m. ET: Nasdaq drops 2.6% in worst session since March as tech stocks sell off
Here were the main moves in markets as of 4:02 p.m. ET:
S&P 500 (^GSPC): -44.08 (-1.04%) to 4,188.52
Dow (^DJI): -32.60 (-0.09%) to 34,745.16
Nasdaq (^IXIC): -350.38 (-2.55%) to 13,401.86
Crude (CL=F): -$0.08 (-0.12%) to $64.82 a barrel
Gold (GC=F): +$6.90 (+0.38%) to $1,838.20 per ounce
10-year Treasury (^TNX): +2.5 bps to yield 1.6020%
3:02 p.m. ET: Inflation concerns may spark 'freak-out' moment for stocks, but this will likely be a buying opportunity: Strategist
With market participants closely eyeing prospects for a jump in inflation, stocks could see a pullback at signs of surging prices. However, according to at least one strategist, any inflation-driven selloff in the market would likely present an attractive buying opportunity in an otherwise solid backdrop for stocks.
"I think what we're all debating is, is there a moment where inflation seems a bit out of hand and the market brings forward expectations for policy tightening," Brian Levitt, global market strategist, North America at Invesco, told Yahoo Finance on Monday. "We've seen what that looks like before, where five-year rates go up, the dollar strengthens, stocks sell off some, and ultimately we assess from there whether the Fed's going to go ahead with the tightening plan ... or is it just a matter of the market does the Fed's work, we get a little bit of a pause, maybe we get a correction."
"I'm still very much of the mind that we're in the very early stages of this cycle," he added. "This cycle's going to play out over a long period of time. The Fed's not going to be raising rates and inverting the yield curve for years to come. And so inflation that's likely to emerge in the summer could create what we'd call a so-called 'freak-out' moment in the market, but would represent a buying opportunity."
1:19 p.m. ET: Nasdaq extends losses, dropping more than 1.4%
Here's where markets were trading as of 1:20 p.m. ET in New York:
S&P 500 (^GSPC): -3.98 points (-0.09%) to 4,228.62
Dow (^DJI): +220.39 points (+0.63%) to 34,998.15
Nasdaq (^IXIC): -201.04 points (-1.46%) to 13,551.05
Crude (CL=F): +$0.09 (+0.13%) to $64.99 a barrel
Gold (GC=F): +$5.80 (+0.32%) to $1,837.10 per ounce
10-year Treasury (^TNX): +1.2 bps to yield 1.591%
11:37 a.m. ET: There are two main concerns now for equity investors, according to Morgan Stanley
According to strategists from Morgan Stanley, stocks are likely to start seeing diminishing returns from optimism over the post-pandemic economic recovery.
"Rather than getting excited about the reopening, we are getting more concerned about (1) execution risk and (2) what's already priced in," Morgan Stanley's Michael Wilson said in a note Monday. "First, on the execution front, there’s growing evidence that supply remains a problem for many companies, just as demand is picking up. These issues have been particularly acute in certain materials and components, and now it’s becoming more apparent that we have labor shortages as well."
"On valuation, the risk is elevated too," he added. "But, with liquidity still flush and the S&P 500 making new highs every day, few seem worried. For many, the weak payroll number just means more accommodation from the Fed, or at least not a withdrawal any time soon. From our vantage point, the equity risk premium is underpricing these cost/supply issues as well as the other risks we have discussed over the past month."
10:08 a.m. ET: Positive market reaction to Friday's jobs report came because 'the party continues' with Fed liquidity: Strategist
Friday's jobs report — which showed a disappointing 266,000 payroll gains and an unexpected move higher in the unemployment rate – resulted in a positive market reaction, with the Dow and S&P 500 setting new highs despite the disappointing data.
According to many strategists, those moves came as the weak data appeared to solidify the Federal Reserve's stance to keep monetary policy accommodative at least in the near-term.
"It's primarily because 'the party continues,' if you will," JJ Kinahan, chief market strategist for TD Ameritrade, told Yahoo Finance on Monday of the market's reaction to the report. "And by that I mean, the Fed continuing to keep liquidity in the system, not talking about raising rates in the short term, because there's not the pressure on wages that many had expected."
"You did see the leisure and hospitality industry create more jobs than actually the whole report did. I would expect that to continue," he added.
"We have such differences from what the states are doing, from some that are wide open to others that are talking about coming out of some of the restrictions next month," Kinahan said. "I think it's very difficult to predict at what point these bars and restaurants, particularly, and hotels, are putting people on the payroll."
9:31 a.m. ET: Stocks open mixed
Here's where markets were trading after the opening bell Monday morning:
S&P 500 (^GSPC): +1.24 points (+0.3%) to 4,233.84
Dow (^DJI): +128.80 points (+0.37%) to 34,906.56
Nasdaq (^IXIC): -64.68 points (-0.47%) to 13,683.46
Crude (CL=F): +$0.51 (+0.79%) to $65.41 a barrel
Gold (GC=F): +$8.50 (+0.46%) to $1,839.80 per ounce
10-year Treasury (^TNX): -0.7 bps to yield 1.572%
7:54 a.m. ET: Marriott shares dip after posting Q1 revenue that missed estimates, though company highlighted 'leisure demand gained momentum'
Marriott (MAR) posted mixed first-quarter results Monday morning, with revenue down by more than half over last year as lodging demand remained pressured by the pandemic.
First-quarter adjusted earnings were 10 cents per share on revenue of $2.32 billion, representing a 51% drop on the top line. Consensus analysts were looking for $2.37 billion in sales, according to Bloomberg data. The company declined to provide guidance due to COVID-related uncertainty.
Revenue per available room, a closely watched measure of efficiency in the hotel industry, dropped 46.3% over last year in the first three months of 2021, widening to more than double the prior year's 22.5% decline. The drop was most pronounced in the U.S. and Canada, while booking trends in China rebounded, the company said.
"While recovery trajectories vary from region to region, the resiliency of demand has been most keenly demonstrated in mainland China, where occupancy is near the pre-pandemic level. Occupancy reached 66% in mainland China in March, nearly the same as in March 2019, on strong demand from both leisure and business travelers," Marriott CEO Tony Capuano said in a press statement.
"In our largest region, the U.S. and Canada, demand increased rapidly as vaccine rollouts accelerated," he added. "Occupancy started the year at 33% in January and reached 49% by March. Leisure demand gained momentum, particularly in ski and beach resort destinations."
7:21 a.m. ET: Stock futures point to a higher open
Here's where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): 4,229.75, up 4.5 points or 0.11%
Dow futures (YM=F): 34,806.00, up 120 points or 0.35%
Nasdaq futures (NQ=F): 13,675.25, down 34.5 points or 0.25%
Crude (CL=F): +$0.37 (+0.57%) to $65.27 a barrel
Gold (GC=F): +$9.60 (+0.52%) to $1,840.90 per ounce
10-year Treasury (^TNX): up 0.2 bps to yield 1.581%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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