By William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks were mixed in choppy trade
Monday, as investors kept an eye on rising Treasury yields and
weighed expectations the Federal Reserve will move soon to curtail
the monetary stimulus it provides to the economy.
The Dow Jones Industrial Average (DJI) fell 8.99 points, or less
than 0.1%, to 15,072.48, while the S&P 500 (SPX) slipped 0.88
point to 1,654.95. The Nasdaq Composite (RIXF) rose 17.39 points,
or 0.5%, to 3,620.11.
"Wall Street hates uncertainty, and right now discerning the
appropriate yield on the 10-year Treasury note is resulting in an
awful lot of uncertainty," said Sam Stovall, chief equity
strategist at S&P Capital IQ, in a note.
Treasury yields continued to push higher, exploring territory
last seen in July 2011. The yield on the 10-year Treasury note
(10_YEAR) rose 3 basis points, or 0.03 percentage point, to
2.86%.
Rising yields can undercut stocks due to fears that higher
borrowing costs will slow economic activity. Yields have been on
the rise since this spring, when Federal Reserve Chairman Ben
Bernanke indicated the Fed could begin scaling back its $85
billion-a-month bond-buying plan later this year.
While stocks recovered from a June pullback fueled by concerns
over the Fed's plans, markets stumbled last week as the 10-year
yield rose to two-year highs.
Meanwhile, analysts debate whether a decision by the Fed to
begin scaling back its bond-buying program should be viewed as a
negative for stocks.
"I happen to be in the camp that thinks good news is, in fact,
good news and that investors are overreacting to the prospect of
tapering," said Jerry Webman, chief economist at Oppenheimer Funds
in a note to clients.
In fact, market expectations that the Fed will begin to cut back
its purchases may have grown so strong that failure to act soon
could be a bigger negative for stocks because it would raise
questions about the underlying strength of the economy, he
said.
If the Fed takes "a wait-and-see approach to the incoming data,
market participants might think: What does the Fed know that we
don't? Is the economy actually weaker than it appears? Is the Fed
secretly worried?" Webman wrote.
Others argue that the prospects of reduced monetary stimulus
along with other events, such as the debt-ceiling debate and the
continued impact of the budget sequester, make it possible that a
correction is already under way. In that scenario, "good news" on
the economy isn't necessarily positive for stocks.
"As the consensus of recent economic reports points towards a
stronger economy, the tapering concerns are bound to take their
toll," said Randy Frederick, managing director of active trading
and derivatives at the Schwab Center for Financial Research. "I
expect the [S&P 500] to come down about another 100 points
before rebounding again in the November-December timeframe."
With no major economic data due on Monday, investors are looking
ahead to the release Wednesday of the minutes of the latest meeting
of Fed policy makers, as well as the Kansas City Federal Reserve's
annual retreat in Jackson Hole, Wyo., at the end of the week.
Bernanke, however, won't be attending, likely undercutting its
influence, and leaving investors to obsess all the more over
yields.
"With U.S. private-sector investors barely buying any
longer-dated Treasurys in recent years, the market is nervous about
how high yields have to be to lure them in," wrote Kit Juckes,
currency strategist at Société Générale in London. "On a day with
no data in a week with Jackson Hole as the main focus, nerves are
jangling and a yield overshoot possible."
Meanwhile, the minutes of the Federal Open Market Committee's
July 30-31 meeting will be released at 2 p.m. Eastern on Wednesday.
The summary will be scanned for information on how many policy
makers were prepared to slow asset purchases, economists said.
A poll by The Wall Street Journal found that 53% of economists
expect the Fed to begin slowing its bond purchases in the third
quarter while 36% expect the process to begin in the fourth
quarter.
It's a light week for economic data, with July existing-home
sales due on Wednesday and new-home sales figures set for release
on Friday.
Shares of Intel Corp. (INTC) rose more than 3%, making it the
biggest gainer on the Dow and the S&P 500. The rise came after
Piper Jaffray analyst Auguste Gus Richard raised the stock's rating
to neutral from underweight, citing potential gains from the
corporate market and the coming release of Windows 8.1.
Facebook Inc. (FB) was also on the rise, gaining 1.5% to help
lead the rally by tech stocks. Facebook was buoyed after Evercore
Partners analyst Ken Sena raised his price target to $45 from
$34.
Shares of Apple Inc. (AAPL) maintained upside momentum after the
company posted its strongest weekly performance since October 2011
last week after Carl Icahn trumpeted the company's merits on
Twitter. Apple shares rose another 2% on Monday.
Dollar General Corp. (DG) also rose more than 3%. J.P. Morgan
analysts raised the stock to overweight from neutral, citing a
"sustainable mid-teens-plus [earnings per share] compounding-growth
story unfolding." See: Monday's Movers.
J.P. Morgan Chase & Co. (JPM) fell 1.8%, making it the
largest loser in the Dow. News reports said U.S. regulators are
looking into the bank's hiring practices in China.
Cliffs Natural Resources Inc. (CLF) dropped 2.4%, making it the
biggest loser in the S&P 500. The decline comes after a nearly
4% drop on Friday.
In other markets, Asian stocks closed mostly lower, while
European stocks traded with modest but broad-based losses.
Gold prices failed to hang on to early gains, while most other
metals were also on the decline.
Oil prices moved slightly lower, while the dollar traded mixed
against other major currencies. The Indian rupee, meanwhile, made
headlines as it sank to an all-time low versus the dollar as
efforts by the Indian government to stem panic selling failed to do
the trick.
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