Oil prices hit three-year highs Monday.
Apu Gomes / AFP via Getty ImagesThe Dow Jones Industrial Average was higher Monday as bond yields rose and oil prices climbed to their highest level in three years.
By midday, the Dow Jones Industrial Average was up 133 points, or 0.4%. The S&P 500 was down 0.3%, and the Nasdaq Composite was down 0.8%.
Rising Treasury yields—the 10-year has ticked up to 1.48%—help explain the divergence. Last week, the Fed signaled that it is nearly ready to reduce, or taper, the amount in bonds it is purchasing a month, and markets are also taking potential hikes to interest rates in stride, betting that such a move won’t disrupt the economic recovery. Value stocks, which tend to be more economically sensitive than fast-growing stocks like many in the technology space, are gaining Monday, and help to explain the Dow’s outperformance.
International oil benchmark Brent futures were changing hands at three-year highs, up 2% to above $78 a barrel. U.S. oil futures similarly rose to above $75.
“This move has real momentum behind it, as well as solid fundamental rationale as oil markets tighten,” said Neil Wilson, an analyst at broker Markets.com. “The tightness in the physical market means inventories are being drawn down around the world.”
Durable goods orders rose 1.8% month-over-month in August, higher than the expected 0.7% increase. “The data show strong demand, but also supply-side constraints that are in some cases restraining final consumption of durables,” wrote Citigroup economist Andrew Hollenhorst.
While many stocks are flourishing, the broader market still shows that investors are uncertain about the future. The CBOE Volatility Index, which measures expected volatility, is up 3.5% and had risen as much as 7%. While the S&P 500 is trading around its 50-day moving average of 4,441, a key technical indicator, it briefly fell below that level this morning.
For the immediate term, investors are hoping that Congress can pass a reconciliation bill and a debt ceiling agreement soon and avoid a government shutdown.
Regarding the economic and earnings outlook for the months ahead, companies will soon report third-quarter earnings. Already, some have posted disappointing results and guidance because supply chain constraints are disabling companies from meeting demand and creating higher costs, which dent profit margins.
Overseas, Hong Kong’s Hang Seng Index closed just below flat. Troubled China Evergrande may not survive its own financial woes, but the People’s Bank of China has already injected tens of billions of dollars into the banking system, making it clear that it will not allow contagion.
Germany’s DAX rose 0.3%, after weekend election results showed the center-left Social Democrats pulling ahead, giving leader Olaf Scholz the mandate to form a government.
Also read: The Stock Market Has Put China Evergrande Concerns Behind It. Why That’s a Mistake.
Here are 12 stocks on the move Monday:
With oil prices rising, oil producers Occidental Petroleum (ticker: OXY) and APA Corp. (APA) were seeing their shares rise 6.6% and 5%, respectively.
Bath & Body Works (BBWI) stock rose 0.7% after getting upgraded to Overweight from Neutral at Atlantic Equities.
Hyatt Hotels (H) stock was up 0.8% even after getting downgraded to Underperform from Neutral at Bank of America.
BP (BP.U.K.) rose 3.3% and Royal Dutch Shell (RDSA.U.K.) was up 4.4% in London while Total (TTE.France) climbed 3.7% in Paris.
Evergrande’s electric-vehicle arm, Evergrande New Energy Auto (0708.H.K.), sank 9.4% in Hong Kong as the cash crisis at its parent company spread. The car company has warned of a shortage of funds and canceled a stock market listing in Shanghai. The stock is down 93.4% year-to-date.
Rolls-Royce (RR.U.K.) rose 11% in London, after the British engineering group won a major contract to provide engines for the U.S. Air Force’s B-52 Stratofortress.
Macau has tightened up travel restrictions amid concerns around Covid-19, adding pressure to the already weakened gaming sector in the world’s largest gambling hub. China Sands (1928.H.K.) fell 4%, Wynn Macau (1128.H.K.) slipped 4.5%, and MGM China (2282.H.K.) tumbled 10.4% in Hong Kong.
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