Stocks close mostly lower after volatile session as bond yields remain in focus

Nasdaq snaps three-day losing streak

U.S. stocks closed mostly lower Tuesday after a volatile session as investors continued to fret over the implication of higher bond yields on equities. The Nasdaq, however, snapped a three-day losing streak in line with a rebound in technology shares.

How did major benchmarks fare?

The Dow Jones Industrial Average DJIA, -0.21% fell 56.21 points, or 0.2%, to 26,430.57 and the S&P 500 index SPX, -0.14% slid 4.09 points, or 0.1%, to 2,880.34. The Nasdaq Composite Index COMP, +0.03% bucked the trend to edge up 2.07 points to 7,738.02 as tech stocks outperformed the broader market.

The S&P 500 dipped below its 50-day moving average, a closely watched gauge of short-term momentum, for a third day. However, it rebounded to close above it, suggesting it could also serve as a support level. The benchmark index hasn’t closed below its average since July.

What drove the market?

Recent trading has been driven by rising bond yields and interest rates, both of which could signal a new phase in postcrisis markets that have enjoyed a protracted period of ultralow yields.

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.

On Tuesday, the yield on the U.S. 10-year Treasury note TMUBMUSD10Y, +1.04% fell 2.3 basis points to 3.206%, though it continued to hover near its highest level since 2011.

Traders also continue to watch for the latest developments on trade policy, as well as political uncertainty abroad, especially with respect to Italy’s budget targets.

On Monday, the International Monetary Fund cut its global growth forecast for this year and next to 3.7%, which for both years is 0.2% below its prior forecast in July. This reflects weaker growth in advanced economies, rising trade tensions and higher oil prices.

In the latest economic data, the National Federation of Independent Business small-business optimism index fell 0.9 point in September, falling from a 45-year high to a seasonally adjusted level of 108.8.

On the Fed front, Robert Kaplan, president of the Federal Reserve Bank of Dallas, said that cyclical inflation pressures were building, but that inflation wasn’t likely to spin out of control.

What were analysts saying?

Strategists at Bank of America Merrill Lynch expect interest rates to stabilize around current levels for now but predicted they could rise further in the longer term.

“We continue to believe the curve should flatten as the Fed continues on their tightening path and see real money demand for the long-end offsetting higher supply. On balance, the risks to our forecasts are skewed toward higher rate levels and a flatter curve, though it may take a further improvement in productivity or global growth to shift rates materially upward,” Mark Cabana, a rates strategist at Bank of America Merrill Lynch, said in a report.

Jeffrey Saut, chief investment strategist at Raymond James, said that the S&P 500’s 50-day moving average was serving as a support level.

“We do not expect this zone to be violated. However, even a pullback to 2,817 would not ’dent’ this secular bull market. This week there is a fairly strong negative energy blast due, but it should subside by week’s end,” he wrote in a note.

What stocks were in focus?

Shares of Alphabet Inc. GOOGL, -1.11% GOOG, -1.01% Google’s parent company, fell 0.9%. The Wall Street Journal reported that Google exposed the private data of hundreds of thousands of users of the Google+ social network and then opted not to disclose the issue this past spring, in part because of fears that doing so would draw regulatory scrutiny and cause reputational damage. Separately, Bloomberg reported that Google has withdrawn from consideration for a massive Pentagon cloud-computing contract.

American Airlines Group Inc. AAL, -1.70% reversed direction to sink 6.6%. The airline had raised its third-quarter outlook for total revenue per available seat mile and said it expects to record $230 million in charges for fleet restructuring and merger integration expenses among other items.

Starbucks Corp. SBUX, -0.95% shares climbed 2.1% after Bill Ackman revealed that his hedge fund Pershing Square Capital Management LP built a roughly 1.1% stake worth $900 million in the company. Ackman said Starbucks shares have been pressured by a slowdown in same-store sales but given that same-store sales have been consistently positive, Ackman believes there is room for growth.

D.R. Horton Inc. DHI, -0.56% dropped 3.1% after it reported fourth-quarter sales data that was below expectations.

Facebook Inc. FB, -0.55% shares rose 0.4%. The social-media company on Monday announced the launch of Portal, a video-calling device meant to help users “connect with friends and family” with artificial intelligence-powered cameras, but some privacy advocates have questioned the timing of the tablet device’s launch.

Papa John’s International Inc. PZZA, -0.87% soared 8.9% on a Wall Street Journal report that Trian Fund Management LP is evaluating a take over bid.

Perrigo Co. PLC PRGO, -0.67% fell 1.8% after it late Monday named Murray Kessler as president and chief executive.

Affimed NV AFMD, -0.86% sank 24% after the biotech drug developer put two clinical trials on hold following the death of a study participant.

What were other markets doing?

Asian shares saw a mixed performance, with Japanese equities down while European indexes ended mostly higher.

Crude-oil prices CLK9, -0.28% gained, while gold GCM9, +0.05% settled slightly higher and the U.S. Dollar Index DXY, -0.14% traded mostly flat.

error: Content is protected !!