U.S. stocks experienced quiet trading on Monday ahead of what is expected to be a calm, holiday-shortened week.
The S&P 500 remained virtually unchanged in morning trading, hovering near its record set on Thursday, despite most stocks within the index declining. By 10:10 a.m. Eastern time, the Dow Jones Industrial Average had fallen 107 points, or 0.43%, while the Nasdaq composite was flat.
Rising Treasury yields in the bond market added some pressure on stocks. The increase in yields reversed some of last week’s decline, which had been spurred by better-than-expected inflation reports, raising hopes that the Federal Reserve might cut interest rates later this year.
This week has few major economic reports for the United States, with the notable exceptions of Tuesday’s update on consumer spending at U.S. retailers and Friday’s preliminary report on U.S. business activity. Markets will be closed on Wednesday in observance of the Juneteenth holiday.
A report released on Monday indicated that manufacturing in New York state is still contracting, though not as severely as economists had anticipated. Manufacturing has been significantly affected by the Federal Reserve’s efforts to maintain its main interest rate at its highest level in over two decades.
The Fed aims to keep rates high long enough to slow the economy and curb high inflation but hopes to cut rates before the slowdown turns into a recession.
High interest rates negatively impact various investments, particularly real estate stocks, which struggle when high rates create challenging conditions for the industry and attract income-seeking investors away from them and towards bonds.
Real-estate investment trusts in the S&P 500 fell 1%, marking the worst loss among the index’s 11 sectors. Utilities also dropped 0.9%, as their relatively high dividends tend to be less attractive when bond interest rates rise.
Offsetting these losses was Autodesk, which rose 4.6% after an investment firm announced plans to delay the software company’s annual meeting to nominate new directors for the board. Starboard Value also criticized Autodesk’s financial performance, suggesting it hasn’t met its potential.
Chip company Broadcom also saw a 4.5% increase, adding to last week’s gains after reporting better-than-expected profits and announcing a 10-for-one stock split to make its shares more affordable. This move followed Nvidia’s similar stock split, driven by excitement around artificial intelligence technology.
Broadcom was a significant force pushing the S&P 500 upward, along with a 1.6% rise for Apple.
In the bond market, the yield on the 10-year Treasury climbed to 4.29% from 4.22% late Friday. The two-year Treasury yield, which more closely tracks expectations for the Fed, rose to 4.74% from 4.71%.
In international stock markets, European indexes stabilized following last week’s turmoil. France’s CAC 40 rose 0.5% after suffering its worst week in two years due to concerns that potential losses by the president’s centrist party could lead to sharply higher debt for the country.
Modest gains in Europe followed losses in Asia, where Japan’s Nikkei 225 dropped 1.8%.
Featured Image: Freepik @ wirestock
