Rising bond yields tend to weigh on equity valuations, particularly those of growth and technology stocks, as higher rates reduce the value of future cash flows.
"The market is in a holding pattern because this week will
be key to shedding light on what's going on with the U.S.
economy," said Irene Tunkel, chief U.S. equity strategist for
BCA Research in New York who will keep a close watch on
February's U.S. non-farm payrolls report, due out Friday.
"People are worried about the jobs number and the economic
data because they're worried about what the Fed will do.
Ultimately all roads lead to the Fed."
And with potential Fed rate hikes their key concern,
Monday's data had already dampened investor enthusiasm, said
Shawn Cruz, head trading strategist at TD Ameritrade in Chicago.
"The market pullback was because there is still a lot of
work to do on inflation," said Cruz. "We're not seeing the type
of demand slowdown we need to see. The whole point of the Fed
hiking rates is to slow down the economy."
According to preliminary data, the S&P 500 gained 2.72 points, or 0.07%, to end at 4,048.36 points,
while the Nasdaq Composite lost 12.59 points, or 0.11%,
to 11,676.41. The Dow Jones Industrial Average rose 38.69
points, or 0.12%, to 33,429.66.
The commodity-linked materials sector was weak on
Monday after China set a lower-than-expected target for economic
growth this year at around 5%.
The three main U.S. stock indexes had rallied on Friday and
notched weekly gains after comments from Fed policymakers calmed
jitters around aggressive rate hikes.
But San Francisco Federal Reserve Bank President Mary Daly
said on Saturday that if inflation and labor market data
continue to come in hotter than expected, interest rates would
need to go higher and stay there longer than Fed policymakers
had projected in December.
Investors will look for clues about the Fed's future rate
hiking path when Powell testifies before Congress on Tuesday and
Wednesday. Since Powell last spoke strong economic data and
hotter than expected inflation have raised concerns the Fed will
raise rates higher than expected or keep them higher for longer.
Traders expect at least three more 25-basis-point hikes this
year and see interest rates peaking at 5.44% by September from
4.67% now. Shares of cryptocurrency-related companies were volatile
after Silvergate Capital Corp pulled the plug on its
crypto payments network and raised doubts about the company's
ability to stay in business.
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Correlation between S&P 500 and 2-year Treasury bond yields 20-day correlation of S&P 500 to two-year U.S. Treasury note ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Sinéad Carew, Sruthi Shankar, Bansari Mayur
Kamdar and Shristi Achar A in Bengaluru; Editing by Vinay
Dwivedi, Anil D'Silva and Richard Chang)
