Top line
Stocks fell Monday as geopolitical concerns added to inflation concerns and put more pressure on financial conditions, a familiar but nightmarish story for bullish investors hoping stock indexes maintain their record highs.
Highlights
After remaining positive for much of Monday following its worst week of 2024, the S&P 500 turned negative and ended the day down 1.2% at 5,062, its lowest closing price since February 21 .
The tech-heavy Dow Jones Industrial Average and Nasdaq fell 0.7% and 1.8%, respectively, with Salesforce’s 7% loss and Tesla stock’s 6% decline leading the way. the negative charge.
The sell-off in stocks came as bond yields rose sharply as the market shifted toward less risky bets, with Israel’s anticipated response to the weekend’s Iranian drone strikes underscoring the escalation of the violence in the Middle East.
Yields on 10-year U.S. Treasury notes jumped 12 basis points to over 4.6%, their highest level since November 13, and similar rises in short-term government bonds indicate that Market hopes of a reduction in short-term interest rates are fleeting.
Higher yields weigh on stock prices for several reasons, primarily because they make debt financing more expensive for the many companies that rely on debt offerings to operate, and they incentivize investors to keep their money in bonds, where the exchange rate is more secure. return than that of stocks.
Chief Spokesperson
“Despite market nervousness, the relative resilience of stock markets in the face of a wave of distressing data is impressive,” according to Mark Hackett, head of investment research at Nationwide.
Key context
The S&P is about 4% below its record high set on March 28, which could be painful for many investors. well inside historical limits. April’s crisis coincides with diminishing expectations that the Federal Reserve would significantly cut interest rates in 2024, hopes that would bolster corporate earnings power and relative valuations, but were dashed by a series of worrying reports on inflation. The combination of higher yields, overseas conflicts and inventory losses is reminiscent of the brutal 2022 sell-off, partly caused by Russia’s invasion of Ukraine and its impact on prices world energy companies. On Monday afternoon, the world’s largest cryptocurrency, bitcoin, also fell more than 3%. Bitcoin is about 14% off its March high, but it has pared its losses from its almost immediate 10% loss on Saturday when news of the Iranian attack on Israel broke.
To monitor
How can companies deliver on their promises during the recently launched earnings season, which will see the release of the first financial results of 2024 and help determine whether high market valuations are justified. “Earnings above earnings will be crucial in trying to support the market,” Mislav Matejka, JPMorgan’s chief global equity strategist, wrote to clients on Monday.
Further reading