A man wearing a protective mask rides a bicycle in front of an electronic stock board showing Japan's Nikkei 225 index on Jun. 9, 2021, in Tokyo.
APStocks closed down on Wednesday as investors wait for key economic data out later this week. Tech stocks outperformed as bond yields fell.
The Dow Jones Industrial Average fell 152 points, or 0.44%, while the S&P 500 dropped 0.2% and the Nasdaq Composite declined 0.1%.
Asian stocks finished mixed, with the China CSI 300 flat, but South Korea’s KOSPI index rising nearly 1% after data showed surging factory-gate prices in China. Fresh signs of global inflation come a day ahead of a key update on U.S. consumer prices.
A much sharper-than-expected rise in April prices last month temporarily shook up markets. Investors are waiting to see if strong inflation data will prompt the Federal Reserve to pull back on its accommodative monetary stance, which could turn into a headwind for stocks.
Technology stocks outperformed, as the 10-year Treasury yield slipped to 1.49%. Lower yields on long-dated bonds boost the value of future cash flows and many tech companies—relying on long-term industry growth trends—are expecting profit growth well into the future. The yield is down from 1.7% hit on May 12 and the Nasdaq is up more than 6% since then. The yield also touched its lowest level since March 3 this year.
While the recent economic data should, by standard logic, move bond yields higher, the opposite is happening. An auction of 10-year Treasury debt saw a bid-to-cover ratio of 2.58, according to the Treasury Department. That means there were $2.58 of bids for every dollar of the bonds sold. That’s higher than the one-year average of 2.4, according to Peter Boockvar, chief investment officer of Bleakley Advisory Group.
“This solid demand of course comes right before tomorrow’s consumer price index,” Boockvar writes. “It says a lot about [economic] growth worries,” he said, citing that worker and material shortages could hold back economic growth.
Meanwhile, buyers of the bond could be from all over globe, as the U.S. is home to the highest government bond yields. “Investors around the globe are starving for yield and relative to every other yield out there in the world, the U.S. is still the highest,” says Stephanie Link, chief investment strategist and portfolio manager at Hightower. Plus, “the bond market believes inflation is transitory.”
China’s producer-price index climbed 9% from a year ago in May, a surge from April’s 6.8% increase, according to data from the National Bureau of Statistics. The gain was higher than the 8.6% increase predicted in a poll of economists from The Wall Street Journal, and was the fastest rise since September 2008.
The jump in prices dented shares of mining stocks in Europe, with Rio Tinto and Anglo American under pressure. The Stoxx Europe 600 index added 0.1%, while the FTSE 100, where many of those mining stocks are listed, dropped 0.2%.
Markets will be closely watching Thursday’s European Central Bank monetary-policy decision, particularly to see if the central bank will keep its current pace of bond purchases intact.
Shares of GameStop (ticker: GME) gained 0.85%. The video game retailer and popular meme stock will report results after the market close.
ContextLogic (WISH) stock initially spiked, then swung to a 8.86% loss. The stock has gotten caught up in the “meme stock” frenzy.
Colgate-Palmolive Co. (CL) stock initially gained, then fell 0.45% after getting upgraded to Outperform from Neutral at Credit Suisse.
Chemours (CC) stock rose 2.88% after getting upgraded to Buy from Neutral at Goldman Sachs.
Abercrombie & Fitch (ANF) stock gained 0.85% after getting upgraded to Buy from Hold at Jefferies.
Wendy’s (WEN) stock dropped 12.68% after getting downgraded to Hold from Buy at Stifel.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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June 10, 2021 at 03:20AM
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Stocks Close Down as Investors Wait for Inflation Update - Barron's
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