US stocks rose sharply on Monday as government bond yields fell from their highs last week, allaying inflation concerns and higher interest rates undermining stock valuations.
The Dow Jones Industrial Average rose 620 points, or 2%, led by Boeing, which rose 6.7%. The S&P 500 gained 1.8% as all 11 sectors traded in the green. The Nasdaq Composite, the tech heavy index that was hit hard last week, fell 1.7%.
The 10-year government bond yield fell to 1.43% on Monday, a 3 basis point decrease from Friday and a decrease from its recent high of 1.6% on Thursday. The sudden surge in the benchmark yield has rocked stocks for the past week as rising interest rates can jeopardize the relative attractiveness of stocks and compress stock valuation by reducing the value of future cash flows.
Market breadth was strong on Monday with only about 8 stocks trading lower across the S&P 500. On the NYSE, 11 stocks rose for every stock that fell. Economic reopening games like Carnival and American Airlines were at least 3% higher due to optimism about vaccines and economic reopening. Meanwhile, high-growth technology stocks did better as interest rates fell. Apple and Tesla both rose 3%.
“Equity investors continue to view the rise in interest rates primarily as ‘a good thing’ rather than a threat, although the tree has shaken a bit in several stocks and other parts of the market over the past week,” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group. “The advantages of vaccines versus the challenge of higher rates will be the theme this year.”
The blue chip Dow and S&P 500 lost 1.7% and 2.5% respectively last week. Tech-heavy Nasdaq fell more than 4% over the same period after suffering its worst one-day sell-off since October on Thursday. Technology companies rely on being able to borrow money at low interest rates to invest in future growth.
“The oversized rotation suggests that there may be a tactical reversal as returns calm down,” said Keith Parker, equity strategist at UBS, in a note. “The result should more than make up for headwinds over the course of the year, albeit with downward trends in this upward trend.”
The Centers for Disease Control and Prevention Advisory Board unanimously decided on Sunday to recommend the use of Johnson & Johnson’s one-off Covid-19 vaccine for people aged 18 and over. The company expects to initially deliver four million cans.
The House passed a $ 1.9 trillion Covid Relief Act, the American Rescue Plan Act of 2021, early Saturday. The Senate will now consider the legislation.
Key averages rose in February on a strong earnings season, positive news on the vaccine launch and hopes for another stimulus package.
The Dow was up 3.15% in February for its third positive month in four years. The S&P 500 was up 2.61% and the Nasdaq Composite was up nearly 1% for the fourth positive month in a row.
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