Stocks Hold Steady as Bond Yields Remain Contained

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Stocks continued to tread water on Monday, with all eyes on the Federal Reserve’s upcoming June meeting, which ends on Wednesday. Treasury yields inched higher, but the threat of rising bond yields remains seemingly contained.

The

S&P 500

 was down 0.2% on Monday morning, from its record high set on Friday. The 

Dow Jones Industrial Average

 was down 146 points, or 0.4%, and the 

Nasdaq Composite

 added 0.2%.

The discussion in markets continued to be the resiliency of government bond prices in the face of data showing accelerating consumer prices. A higher inflation rate lowers the real yield on bonds, normally pushing down their prices and lifting their nominal yields to compensate.

But after beginning the year at around 0.9% and peaking at more than 1.7% in March, the yield on the 10-year Treasury note has drifted lower in recent months. It remained below 1.5% on Monday, up 0.2 percentage point to 1.48%.

Analysts at BCA Research noted that consumer inflation expectations, as measured by the University of Michigan consumer sentiment survey released Friday, fell both at the one-year level as well as the five-to-10 year forecast. Together with receding market-based measures, the readings suggest the inflation scare is in the rearview mirror.

“Waning fears about price pressures reduce the likelihood that inflation expectations become unanchored and force the Fed to prematurely shift to a hawkish stance—a positive for the equity outlook,” the BCA analysts said in a note to clients.

The Federal Reserve will announce its latest monetary-policy decision on Wednesday. Whether or not officials discussed a timeline for beginning to reduce the Fed’s $120 billion-a-month bond-buying program will be the key takeaway from the meeting. The so-called “dot plot” of economic projections will also be a focus, with the previous edition showing policy makers on average predicting no interest rate hikes through 2023. Officials’ predictions of future inflation will also be interesting to watch.

“The Fed officially enters into the next policy phase this week as it begins ‘talking about talking’ about tapering,” wrote
Tim Duy
chief U.S. economist at SGH Macro Advisors and professor of practice at the University of Oregon. “That said, it’s still too early to expect any big announcements…Ultimately, the goal is to leave plenty of small breadcrumbs to follow such that the Fed leads market participants to the actual taper with minimal disruption to financial markets.”

Up for four consecutive weeks, the Stoxx Europe 600 rose 0.2% Monday, putting the index on track for another record finish. The U.S. S&P 500 finished at its 28th record high of the year on Friday. The Nikkei 225 rose 0.7% in Tokyo, while Australian and Chinese markets were closed for holidays.

Lordstown Motors

 (ticker: RIDE) stock dropped 21% after its CEO and CFO resigned. A board committee found that some of the startup battery-powered truck maker’s previous statements about preorders were incorrect.

Novavax

 (NVAX) was up 1% after announcing that Phase 3 trial data showed its Covid-19 vaccine to be 90.4% effective against the disease overall, and 100% effective at preventing severe cases. 

Moderna

 (MRNA) stock fell 7.4%,

Pfizer

(PFE) lost 1.4%, and

AstraZeneca

(AZN) slipped 0.2%.

Ferrari

 (RACE) fell 3.4% after Goldman Sachs downgraded its stock to Sell from Buy on concerns about the cost of developing an electric vehicle.

Chipotle Mexican Grill

 (CMG) gained 2.5% after getting upgraded to Strong Buy from Outperform at Raymond James.

Wendy’s

 (WEN) rose 2.1% after getting upgraded to Buy from Neutral at Northcoast.

Write to Ben Levisohn at ben.levisohn@barrons.com