Stock Market Today: Stocks Rally at Close as Key Bond Yield Surpasses 3%

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The stock market rebounded a little on Monday as investors anticipate Wednesday’s FOMC meeting.

The buyers stepped in after a strong sell-off on Friday, which saw the Dow Jones fall nearly 3%, the S&P 500 lose more than 3% and the Nasdaq fall more than 4%.

General concerns that linger: The Federal Reserve is adamant about reducing high inflation by raising short-term interest rates and reducing its holdings of bonds, which lowers bond prices and raises bond yields. It’s nothing new for investors, but the market is still trying to figure out how fast the Fed will go and how fast it will reduce its balance sheet, a process known as quantitative tightening.

China’s zero-tolerance policy for the spread of Covid-19 is shutting down some economic activity, with its services and manufacturing purchasing managers’ indices falling below 50, the level which separates a growing economy from a contracting economy, in March . China’s slowing growth is already prompting some companies to warn investors about second-quarter earnings, with


Apple
(ticker: AAPL) saying it could see sales of $4 billion to $8 billion hit in the quarter due to limited supply from China.

“[Economic] growth concerns have been heightened by China’s continued struggles to contain COVID-19,” wrote Mark Haefele, chief investment officer of global wealth management at UBS.

With markets digesting some of these developments, it’s not necessarily surprising to see stocks jump a little on Monday.

“All this negativity and the timing may be what we need to prepare for a near-term rebound,” the New York Stock Exchange strategists wrote.

It may also come as a surprise that tech stocks rebounded while bond yields also surged.

The 10-year Treasury yield climbed to 3%, a new pandemic-era closing high. The rise in yield reflects expectations for average annual inflation over the next 10 years of just under 2.9%. Investors often demand a rate of return above the rate of inflation, and this is finally beginning to be reflected in the bond’s yield.

Usually, tech stocks struggle when the yield rises. But tech sales were already worse than other sectors on Friday, so tech rebounded on Monday.

It’s the short term.

The stock market, including technology, still has a long way to go before equities see sustained gains. The S&P 500 is still 10% below its March 29 level, which marked a multi-month high. It is still below its 50-day moving average, indicating that market participants are still not comfortable buying stocks at levels consistent with their recent trend. The Nasdaq is also below its 50-day moving average.

“With the SPX coming off of one of its worst months in the past half-century…with the specter of aggressive rate hikes in the near future, the mood isn’t exactly bullish,” Frank wrote. Cappelleri, Chief Market Technician at Instinet.

Sentiment in the market remains weak at the moment as the appetite to buy stocks has yet to fully rebound. A survey of individual investor sentiment shows a 13-week average that’s near a multi-decade low, according to 22V Research. “Sentiment readings remain depressed as investors work amid uncertainty related to U.S. monetary policy, European growth, and China’s COVID lockdowns and stimulus,” wrote Dennis DeBusschere, founder of 22V Research.

The Fed makes its decision on how quickly to raise interest rates — which it likely will — this Wednesday afternoon.

“There will be clarity on the US policy front this week, laying the groundwork for another potential positive narrative shift,” DeBusschere wrote.

Even if markets are already expecting Fed Chairman Jerome Powell to adopt a hawkish tone, a tone that signals a definite intention to hike rates, he is likely to stick firmly to that. your. That’s because, if it looks dovish — on the contrary — interest rates may fall in response, which is not what the Fed wants, wrote RBC economist Tom Porcelli.

Deutsche Bank’s Matthew Luzzetti discusses the implications of an aggressive Federal Reserve and Citi’s Kristen Bitterly explains how to build a defensive portfolio.

Here are six stocks in motion on Monday:

Amazon.co.uk (AMZN) first fell and then gained 0.2% after the stock fell sharply on Friday following weaker-than-expected sales forecasts for the second quarter.

Apple stock was down, before ending up 0.2%. The European Commission has filed a formal complaint against the company for abusing its position in the mobile wallet market. Shares fell 3.7% on Friday after the tech giant issued a cautious outlook for the June quarter.

Global Payments (GPN) fell 9.2% after the company reported earnings of $2.07 per share, beating estimates of $2.04 per share, on sales of $2.16 billion, over above expectations of $1.95 billion.

ON Semiconductor (ON) gained 6.7% after the company reported earnings of $1.22 per share, beating estimates of 17 cents per share, on sales of $1.95 billion, above expectations of $1.91 billion.

Berkshire Hathawayit is Class B shares (BRK.B) fell 1.6% after the Warren Buffett-led conglomerate reported first-quarter after-tax operating profit of $7 billion, up less than 1% compared to the prior year period as the company reduced its share buyback as the stock price rebounded.

American certificates of deposit of


NIO
(NIO) rose 4.7% after deliveries of its electric vehicles in April fell from the previous month.

Write to Joe Woelfel at joseph.woelfel@barrons.com and Jacob Sonenshine at jacob.sonenshine@barrons.com

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