The catalysts behind the volatile price action were climbing Treasury yields and the prospects of rising inflation.
The major U.S. stock indexes finished mixed on Monday with the S&P 500 Index and NASDAQ Composite Index taking a hit due to their exposure to high-flying technology stocks, and the Dow eking out a small gain, underpinned by beat-up cyclical and value issues. The catalysts behind the volatile price action were climbing Treasury yields and the prospects of rising inflation. Essentially, the price action was fueled by an epic battle between value and growth fueled by valuation concerns.
Cash Market Performance
In the cash market on Monday, the benchmark S&P 500 Index settled at 3876.50, down 30.21 or -0.77%. The blue chip Dow Jones Industrial Average finished at 31521.69, up 27.37 or +0.09% and the technology-driven NASDAQ Composite closed at 13533.05, down 341.41 or -2.46%.
Advancing issues outnumbered declining ones on the NYSE by a 1.14-to-1 ratio; on NASDAQ, a 1.17-to-1 ratio favored decliners.
The S&P 500 posted 71 new 52-week highs and no new lows; the NASDAQ Composite recorded 252 new highs and 10 new lows.
Investors Monitoring Treasury Yields
U.S. benchmark 10-year Treasury yields were up at 1.36% on Monday. Since the beginning of February, 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years.
Despite finishing higher, yields actually posted a choppy, two-sided trade on Monday, which could be a sign of nervousness ahead of Federal Reserve Chairman Jerome Powell’s testimony on Tuesday before the Senate Banking Committee.
Yields were also influenced by comments from European Central Bank (ECB) President Christine Lagarde that her team was monitoring rising rates. Yields eased on Lagarde’s comments but rose again later in the session.
US Economic Data
January data from the Chicago Fed National Activity Index showed a month-over-month increase, while the Dallas Fed’s Texas manufacturing survey showed “markedly faster” expansion in the state’s factory activity.
Sectors and Stocks
Value stocks have outperformed growth shares in February, with investors betting on a rebound in industrial activity and a pickup in consumer demand as countries roll out vaccines to tame the pandemic.
The S&P 500 Industrials and financial sector rose 0.8% and 1.1%, respectively, while energy stocks surged 4.5% on higher oil prices.
Shares of Apple Inc, Microsoft Corp, Alphabet Inc, Tesla Inc and Amazon.com Inc resumed their slide from the previous week, falling between 0.9% and 5%. Dow component Disney rose 5%.
Discovery Inc jumped 9.5% after the media company said it was expecting 12 million global paid streaming subscribers by the end of February, as coronavirus-led restrictions kept people at home.
Kohl’s Corp gained 7.9% after a group of activist investors nominated nine directors to the department store chain’s board.
Principal Financial Group Inc added 8.8% after a media report that activist investor Elliott Management Corp had taken a stake in the life insurance company and planned to push for changes.