Stocks Lethargic as 10-Year Treasury Yield Nears 3%
24 April 2018 - 8:03AM
Dow Jones News
By Riva Gold and Michael Wursthorn
The S&P 500 was largely unchanged Monday as a stock-market
rally that once appeared unstoppable entered its longest stretch of
vulnerability since the financial crisis.
Monday's increase of less than 0.1% marked the 51st trading day
since the index suffered a correction -- a decline of at least 10%
from a recent high -- its longest stretch in correction territory
since 2008.
Investors tepidly traded most of the day, with the fewest number
of shares changing hands since Dec. 29. Analysts said many
investors held off on making any meaningful changes to their stock
portfolios to see whether a selloff in government bonds would push
the benchmark 10-year U.S. Treasury note past the milestone of 3%,
a level it hasn't reached since 2013.
The long-dated Treasury note reached as high as 2.996% in early
trading Monday before moving back down to 2.973%.
The 10-year Treasury yield is a key metric affecting borrowing
costs for companies and consumers, and some analysts worry that
rising rates can threaten economic growth and corporate
profitability.
"This has investors debating whether the rise in Treasury rates
will be enough to downgrade the strength of the economy," said
Brent Schutte, chief investment strategist at Northwestern Mutual
Wealth Management.
Mr. Schutte and other analysts say rates would have to move
meaningfully higher to significantly disrupt the U.S. economy.
Key economic indicators, from manufacturing activity to retail
sales, remain strong despite recent data showing some signs of
slowing, he added.
Still, money managers are bracing for continued volatility as a
raft of other inflationary pressures, including billions of dollars
in tariffs on goods and signs of rising wages, are likely to force
investors to consider big changes to their stock portfolios.
The S&P 500 rose 0.15 points, or less than 0.1%, to 2670.29,
while the Dow Jones Industrial Average fell 14.25 points, or less
than 0.1%, to 24448.69. The Nasdaq Composite declined 17.52 points,
or 0.2%, to 7128.60.
Energy stocks, which tend to benefit from some inflationary
pressures such as rising commodity prices, rose 0.6% in the S&P
500, extending the sector's gain for the month to 9.3%, the best of
any other industry in the index.
A half a percentage-point increase in the 10-year U.S. Treasury
note earlier this year forced investors to consider whether the
run-up in stock valuations could still be supported in an
environment where less-risky assets offer a greater yield. That
contributed heavily to the February selloff that initially knocked
the Dow industrials and S&P 500 into correction territory.
Major indexes have attempted to mount a recovery since then as
many investors said strong corporate earnings and continuing global
growth would help keep equity valuations desirable.
But if the 10-year Treasury note climbs past 3% and shows signs
of moving toward 3.25% and higher, investors will again be forced
to ask whether it makes sense to stay invested in riskier assets
with lower yields. The yield on the S&P 500 was about 2% as of
earlier this month, according to S&P Dow Jones Indices.
"It'll look like a bear market in bonds, which should make
investors concerned since risk-free assets will be yielding more"
than many stocks, said Michael O'Rourke, chief market strategist at
the brokerage firm JonesTrading
Earlier, the Stoxx Europe 600 rose 0.4%, while most indexes in
Asia inched lower. Japan's Nikkei Stock Average edged down 0.3%,
and Hong Kong's Hang Seng fell 0.5%.
Write to Riva Gold at riva.gold@wsj.com and Michael Wursthorn at
Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
April 23, 2018 17:48 ET (21:48 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.