Stocks Hover Near Record Highs as Bond Yields Increase

US labor market

Wall Street trading was subdued on Monday, marking the beginning of what is expected to be a tranquil holiday-shortened week.

The S&P 500 remained virtually unchanged during morning trading, hovering close to its record high set on Thursday. Despite this, most of the index’s individual stocks experienced declines. As of 10:10 a.m. Eastern time, the Dow Jones Industrial Average had fallen by 107 points, or 0.43%, while the Nasdaq composite remained flat.

Rising Treasury yields in the bond market exerted some downward pressure on stocks. The increase in yields partially reversed the decline seen last week, which was fueled by better-than-expected inflation reports. These reports raised hopes that the Federal Reserve might consider cutting interest rates later this year.

This week’s economic calendar for the United States is relatively sparse, 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 revealed that manufacturing in New York state continues to contract, albeit at a less severe pace than economists had projected. Manufacturing has been significantly impacted by the Federal Reserve’s efforts to maintain its key interest rate at its highest level in over two decades.

The Fed aims to keep interest rates elevated long enough to slow the economy and curb high inflation. However, they hope to reduce rates before the economic slowdown turns into a recession.

High interest rates have a detrimental impact on various investments, particularly real estate stocks. These stocks face challenges when high rates make it difficult for the industry to thrive and attract income-seeking investors who are drawn to bonds instead.

Real estate investment trusts within the S&P 500 experienced a 1% decline, marking the most significant loss among the index’s 11 sectors. Utilities also dropped 0.9%, as their relatively high dividends become less appealing when bond interest rates rise.

Offsetting these losses was Autodesk, which surged by 4.6% after an investment firm announced plans to delay the software company’s annual meeting to nominate new board directors. Starboard Value also voiced criticism of Autodesk’s financial performance, suggesting it has fallen short of 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, fueled by excitement surrounding artificial intelligence technology.

Broadcom played a significant role in pushing the S&P 500 upward, alongside 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 closely tracks expectations for the Fed, rose to 4.74% from 4.71%.

In international stock markets, European indexes stabilized after last week’s volatility. France’s CAC 40 gained 0.5% following its worst week in two years, driven by concerns that potential losses by the president’s centrist party could lead to a sharp increase in the country’s debt.

Modest gains in Europe followed losses in Asia, where Japan’s Nikkei 225 dropped 1.8%.