The S&P 500 rose by about 1% after ending last week lower. The Dow and Nasdaq ended higher. Technology stocks outperformed as Treasury yields retreated.
Bitcoin (BTC-USD) prices steadied to rise by more than 13%, after the largest cryptocurrency by market cap endured an extended streak of selling over the weekend. At their worst point during the past week's worth of selling, Bitcoin prices were off by more than 50% from their peak of more than $64,800 from mid-April. Ethereum (ETH-USD), the second largest cryptocurrency, also recovered some recent losses Monday morning, with prices up more than 20% to over $2,400.
The three major indexes are heading into this week following a multi-week stretch of volatile trading. Investors have become increasingly jittery about the prospects of elevated, lasting inflation during the post-pandemic economic recovery. These concerns have hit growth stocks like technology companies especially hard, with the Amazon- and Tesla-heavy consumer discretionary sector down 5.2% in the S&P 500 over the past month, and the information technology sector off by 4.4%.
"I do think it's been a pretty healthy sideways chop," Michael Jones, Caravel Concepts CEO, told Yahoo Finance. "It's taken out some of the speculative excess. The biggest pullbacks have been in some of the most pricey names. That all feels very healthy to me."
"I also think that the big concerns that the market has had about inflation – well, you only care about inflation if the Fed cares inflation," he added. "And the folks on the FOMC [Federal Open Market Committee] who were sounding a warning bell, maybe we should start 'talking about talking about tapering,' since that meeting, a lot of the data has come in weaker than expected ... and I think that gives the more dovish folks ammo to push that conversation about tapering further out in time."
Other pundits have also agreed with the Fed's predominant view that the inflation seen so far in government metrics like the consumer price index and producer price index, and anecdotally in company earnings calls and comments, will prove transitory.
Later this week, the U.S. Bureau of Economic Analysis will release its April personal consumption expenditures (PCE) index on Friday. The headline print is expected to show a rise of 3.5% in April over last year for the biggest increase since 2008, according to Bloomberg consensus data. Stripping away volatile food and energy prices, the so-called core PCE is expected to have increased by 2.9% in April over last year, which would be the largest jump in more than two decades. The core PCE serves as the Fed's preferred gauge of inflation.
But even given these expected increases, many economists have encouraged investors to keep the rises in perspective.
"Although inflation expectations have moved up, our replication of the Fed's reference measure is still below the levels seen in the 2001-2007 expansion," Goldman Sachs Chief Economist Jan Hatzius wrote in a note Monday.
"Ultimately, the biggest question is whether the economy will overheat, i.e. whether output and employment will rise substantially above potential," he added. "We don't expect this because the starting point is one of sizable slack—especially if we consider not just GDP-based but also employment-based measures of the output gap—and because growth is likely to slow from its current rapid pace as the fiscal impulse turns negative next year."
Gold (GC=F): +$6.60 (+0.35%) to $1,883.30 per ounce
10-year Treasury (^TNX): -2.4 bps to yield 1.6080%
—
11:50 a.m. ET: Stocks hold higher as S&P 500, Nasdaq gain more than 1%; tech shares outperform
The three major indexes extended gains in intraday trading, with the S&P 500 and Nasdaq each advancing by more than 1%.
The communication services, information technology and consumer discretionary sectors outperformed in the S&P 500, with these tech-heavy areas making up losses after underperforming over the past several weeks. The utilities sector was the only one in the red heading into afternoon trading.
Microsoft, Cisco, Apple and Intel outperformed in the Dow, while declines elsewhere in components like Goldman Sachs and The Travelers Companies capped gains.
—
10:45 a.m. ET: Strategist on tech stocks: 'It's just the wrong macro backdrop for this part of the market at this moment in time'
Technology stocks have seen some of the biggest drawdowns so far this year as prospects of a strong economic reopening have stoked investor interest in cyclical shares. Rising inflation expectations have also weighed on growth stocks, and will likely continue to do so over the near-term, especially with valuations still elevated, according to a number of strategists.
"The sector still does not look cheap relative to the broad market," she added. "We looked at positioning, and we found that we had really started to see the positioning come down if you look at the futures market. But we weren't back down to the lows that we saw in 2009, 2018 when you really did see some major inflections in the tech space."
"And so bottom line we still think inflationary pressures are here, and tech is one of the biggest sources of funding for rotation back into reflationing plays, things like financials, energy and materials," Calvasina said. "And we don't think those inflation pressures are going to abate any time soon."
—
9:30 a.m. ET: Stocks open higher
Here's where markets were trading after the opening bell:
8:42 a.m. ET: Investors are still positioning for rising inflation: Deutsche Bank
Investor attention so far this year has focused squarely on prospects of rising inflation, with a surge in prices expected to come alongside the jump in demand as people return to in-person activities.
Consumers have taken notice, and investors have been positioning their portfolios in anticipation of these trends, according to Deutsche Bank.
"Positive surprises in inflation data are running at the highest level in at least 20 years (as far back as the data goes)," Deutsche Bank strategists led by Binky Chadha wrote in a note Monday. "Looking throuogh the lens of our flows and positioning indicators, we see: strong inflows into inflation-protected bond funds as well as into equity funds focused on Energy, Materials and Financials, perceived to be beneficiaries of rising inflation; but positioning in commodities is not particularly high, as volatility remains elevated, and commodity focused funds have mostly been seeing outflows."
The strategists added that flows into inflation-protected bond funds have been the strongest since 2010 over the last year, after seeing large outflows in March 2020 as the pandemic hit the U.S.
—
7:23 a.m. ET Monday: Stock futures advance, Dow adds 100+ points, or 0.4%
Here's where markets were trading in pre-market action:
NEW YORK, NEW YORK - MAY 11: People walk by the New York Stock Exchange after global stocks fell as concerns mount that rising inflation will prompt central banks to tighten monetary policy on May 11, 2021 in New York City. By mid afternoon the tech-heavy Nasdaq Composite had lost 0.6% after falling 2.2% at its session low. (Photo by Spencer Platt/Getty Images) ·(Spencer Platt via Getty Images)