Stocks ended lower on Monday as investors mulled ongoing signs of inflation and supply-related challenges and awaited more data on corporate earnings.
The S&P 500, Dow and Nasdaq dropped to erase earlier gains. Treasury yields advanced across the curve, and the benchmark 10-year yield hovered around 1.61%, or its highest level since June.
U.S. West Texas intermediate crude oil futures extended gains after logging a seventh straight weekly advance, jumping to top $82 per barrel at session highs and add to concerns over rising energy, commodity and input prices. WTI crude futures reached highest level since 2014, while Brent crude was at its highest since 2018 after topping $84 per barrel.
Stocks have traded choppily over the past several weeks as investors contemplated the equity market implications of ongoing price increases against a backdrop of decelerating economic growth. Elevated demand and supply-side shortages have pushed up the prices of commodities from oil and natural gas to cotton, and labor shortages have raised the specter of lasting increases in wages and higher costs to employers. Last week's September jobs report "had an inflationary feel with strong wage growth, a rise in the workweek, and a drop in [labor force] participation," Neil Dutta, head of U.S. economics at Renaissance Macro Research, wrote in an email last week.
This week, investors will receive the Bureau of Labor Statistics' latest Consumer Price Index and Producer Price Index, each for September. Increases in core consumer prices, excluding food and energy, are expected to remain elevated on a historical basis, coming in just slightly below June's 30-year high in price increases. Producer prices, meanwhile, are expected to have accelerated further last month.
"'Stagflation' was the most common word in client conversations this week as equity market volatility remained elevated," David Kostin, Goldman Sachs chief U.S. equity strategist, wrote in a note Monday morning. "Stagflation is not our economists' base case expectation, but the weak historical performance of equities in stagflationary environments helps explain why investors are concerned."
Over the last 60 years, the S&P 500 has returned 2.5% on median per quarter, but has fallen by 2.1% during periods of stagflation, or times with high inflation and weak GDP growth, Kostin added.
"Despite near-term uncertainty, we expect the equity market will continue to rally as investors gain confidence that the current pace of inflation is 'transitory,'" Kostin said.
For investors, the pick-up in third-quarter earnings season this week will help offer further company commentary around the impacts of rising prices across the recovering economy. The big banks are on deck to report this week, with names including JPMorgan Chase (JPM), Bank of America (BAC), Morgan Stanley (MS) and Goldman Sachs (GS) each due to post quarterly results.
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4:01 p.m. ET: Stocks end lower, Dow drops about 250 points, or 0.7%
Here's where the three major indexes closed out Monday's session:
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S&P 500 (^GSPC): -30.29 points (-0.69%) to 4,361.05
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Dow (^DJI): -250.19 points (-0.72%) to 34,496.06
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Nasdaq (^IXIC): -93.34 points (-0.64%) to 14,486.20
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1:04 p.m. ET: Stocks trade mixed, S&P 500 and Dow turn negative
The three major indexes erased earlier gains to hug the flat line during afternoon trading.
The utilities and communication services sectors lagged in the S&P 500, while materials and information technology stocks outperformed. A more than 1% drop in each of Verizon and JPMorgan Chase weighed on the Dow, dragging the index into negative territory. The 30-stock index had been up by as many as 205 points, or 0.6%, at session highs. The Nasdaq traded roughly unchanged.
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9:53 a.m. ET: 'A pullback absent a recession is usually a buying opportunity': Strategist
After a volatile September and start to October, investors have grown increasingly jittery that the equity market's resilience from earlier this year may be starting to fray.
However, some strategists argued these concerns may be overblown, and that the latest drop in stocks may actually have been a positive reset for the markets.
"What the markets are telling us right now is we don't have to be as worried as we were mid-to-late summer about waiting for a correction," Liz Young, head of investment strategy at SoFi, told Yahoo Finance Live Monday morning. "Now we've got a correction in a decent amount of sectors – we've got a decent amount of sectors trading below their 50-day moving averages. So it tells you that things are not as frothy as they were earlier this year. And I think that that's a positive."
"What you think about then afterwards is, okay does that mean from a technical perspective it's sending a signal that there's more room to go down? It's possible that there is, but I always like to remind people, a correction or a pullback absent a recession is usually a buying opportunity," she added. "So I think there's actually some good chance that these sectors that have corrected over recent months could bounce back into the end of the year."
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9:31 a.m. ET: Stocks open mixed
Here's where markets were trading just after the opening bell Monday morning:
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S&P 500 (^GSPC): -5.89 points (-0.13%) to 4,385.45
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Dow (^DJI): +52.37 points (+0.15%) to 34,798.62
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Nasdaq (^IXIC): -56 points (-0.38%) to 14,525.98
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Crude (CL=F): +$1.65 (+2.08%) to $81.00 a barrel
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Gold (GC=F): -$2.10 (-0.12%) to $1,755.30 per ounce
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10-year Treasury (^TNX): +4.1 bps to yield 1.612%
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7:30 a.m. ET Monday: Stock futures point to a lower open
Here's where markets were trading ahead of the opening bell:
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S&P 500 futures (ES=F): -15.50 points (-0.35%), to 4,366.75
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Dow futures (YM=F): -69 points (-0.2%), to 34,557.00
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Nasdaq futures (NQ=F): -85.75 points (-0.58%) to 14,722.50
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Crude (CL=F): +$2.73 (+3.44%) to $82.08 a barrel
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Gold (GC=F): +$2.00 (+0.11%) to $1,761.20 per ounce
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10-year Treasury (^TNX): +4.1 bps to yield 1.612%
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter
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