The Dow Jones Industrial Average fell Monday, giving back some of the strong gains from last week, as Treasury yields rose and investors awaited new earnings reports.
The S&P 500 slipped 0.18% to 5,853.98. The 30-stock Dow lost 344.31 points, or 0.8%, to close at 42,931.60 and snap a three-day run of winning sessions. The Nasdaq Composite was the outlier, rising 0.27% and ending at 18,540.01.
Consumer and homebuilder stocks were among the biggest losers as fears about higher-for-longer interest rates crept up, with Target down 3.8% and Builders FirstSource off 5.2%. Lennar also shed 4.4%.
The yield on the 10-year Treasury
jumped, rising nearly 12 basis points to 4.19%.
“Bond yields continue to back up, which implies to me that investors are now thinking that the Fed will be slower to lower interest rates because the economy remains resilient,” CFRA chief investment strategist Sam Stovall said. “As a result, the Fed will likely have a harder time pushing the inflation rate down to its target 2% level in the next year or so.”
Earnings will be key this week with roughly one-fifth of the S&P 500 set to report. Among the companies on deck are Tesla, Coca-Cola and GE Aerospace.
Thus far, the results have been mixed. Of the roughly 14% of S&P 500 companies that have already posted third-quarter results, better than 7 in 10 have beaten expectations, according to FactSet. Analysts have significantly downgraded their earnings expectations for the quarter in recent months.
“I don’t think that we are in the beginnings of an earnings recession or anything like that, but the bar has been set very, very low … rarely does anybody injure themselves falling out of a basement window,” Stovall said. “So with earnings this low, chances are that this will be the 60th quarter out of the past 62 in which actual results exceed end-of-quarter estimates.”
Still, investors are largely optimistic equities have more room to run, but they are mindful that stretched valuations, particularly ahead of the U.S. presidential election and amid rising geopolitical risks, could also mean further choppiness.
Monday’s moves come after both the S&P 500 and 30-stock Dow registered all-time highs on Friday, cementing a sixth straight weekly advance for both benchmarks.
