A choppy trading day on Wall Street ended with stocks largely lower on Monday, as a burst of late afternoon sales derailed the market from another all-time high.
The S&P 500 fell 0.3% after gaining a whopping 1% earlier in the day and on pace to surpass last Thursday’s record. The Dow Jones Industrial Average gained 0.1%, while the Nasdaq lost an early gain and fell 1.3% below its all-time high on Friday.
Bond yields rose sharply. Gold prices fell and energy futures largely rose.
The market was higher for much of the day as traders were relieved to learn that President Joe Biden would nominate Jerome Powell for a second four-year term at the helm of the Federal Reserve, a vote of confidence in Powell’s handling of central bank policy during the brutal disruptions caused by the coronavirus pandemic.
While stocks initially rose on the news, bonds sold out, pushing yields higher overall. The 10-year Treasury yield rose to 1.63% from 1.54% at the end of Friday.
Higher yields on government bonds make the more expensive parts of the market, such as technology stocks, less attractive, which could explain why more stocks were sold towards the end of the day as the bond market shifted.
“Equity market growth areas don’t like higher bond yields,” said Willie Delwiche, investment strategist at All Star Charts. “However, energy and finance loved them.”
The S&P 500 fell 15.02 points to 4,682.94. The Dow won 17.27 points to 35,619.25. The tech-heavy Nasdaq lost 202.68 points to 15,854.76.
Shares of small companies also fell. The Russell 2000 Index fell 11.81 points, or 0.5%, to 2,331.35.
US equities have largely risen since early October as companies reported much stronger gains for the summer than analysts had expected. The benchmark S&P 500 posted weekly gains in eight of the past nine weeks, reaching consecutive record highs along the way.
Still, investors are seeking reassurance about how companies will fare in the coming months as they grapple with higher raw material costs and supply chain problems that could weigh on future profits. Consumers have absorbed higher prices so far, but analysts fear they could eventually curtail their spending if higher prices last too long.
The Federal Reserve is beginning to cut bond purchases that have helped maintain low interest rates in an effort to support the economy and markets as rising inflation hangs over the economic recovery. Investors are watching the Fed closely to see if the pressures of rising inflation are prompting it to accelerate its plans to cut bond purchases and raise benchmark rates.
“Powell’s approval is a sign that Biden is committed to monetary policy and that the Fed is steadily moving towards normalization of policy,” said Brad McMillan, chief investment officer of Commonwealth Financial Network. “Overall, the Fed will continue to be a force for monetary stability.”
More than 55% of shares in the S&P 500 rose Monday, but the losses of major technology and communications companies outweighed gains elsewhere in the benchmark index. Chipmaker Nvidia fell 3.1% and Netflix 2.9%.
Rising bond yields helped boost banks, which rely on higher yields to charge more lucrative interest rates on loans. Bank of America rose 1.9%.
Energy companies were among the winners and were given a boost as the US oil price rose 0.9%. Chevron closed 1.8% higher. Household and personal care companies made solid profits. Walmart rose 1.7% and supermarket operator Kroger rose 4.8%.
Companies that rely on consumer spending also weighed on the market, led by a pullback in shares of Target, which fell 2.5%, and Amazon, which lost 2.8%. Those retailers are on the cusp of the busy holiday shopping season, which traditionally begins right after the Thanksgiving holiday.
The dollar also strengthened against other currencies. The price of gold, a haven for when investors feel anxious, fell 2.4%.
Markets in Europe and Asia closed mixedly as a resurgence in coronavirus outbreaks prompted some countries to take stricter precautions to contain yet another wave of the pandemic.
Investors are dealing with a relatively light schedule of economic updates during this short holiday week. The National Association of Realtors reported surprisingly good sales for previously occupied homes in October on Monday. The Commerce Department will report data on October new home sales on Wednesday, along with third-quarter gross domestic product data.
US markets will be closed on Thursday for Thanksgiving. They also close early on Friday.