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Stocks fell Monday while commodity prices rallied, as rising Treasury yields and expectations of higher inflation weighed on equity prices.
The S&P 500 dipped about 0.8% shortly after the opening bell, and the index was on track to add to last week’s losses. The Dow shed more than 150 points, or 0.6%. The Nasdaq sharply underperformed, dropping 1.3% in early trading as tech shares came under more pressure.
Some commodity prices performed more strongly, however. U.S. West Texas intermediate crude oil futures (CL=F) and Brent crude futures (BZ=F) both jumped after Goldman Sachs strategists said in a note Monday that they expected Brent prices to reach $70 in the second quarter and $75 in the third quarter this year amid rising demand. WTI crude oil has already gained 23% this year and exceeded prices from the same time last year.
Prospects of fast-rising inflation during this year’s expected economic recovery have pushed bond prices lower and yields up sharply. The yield on the benchmark 10-year Treasury note (^TNX) briefly ticked above 1.39% on Monday to reach a fresh one-year high, increasing the specter of higher borrowing costs for companies. Prices of copper jumped above $9,000 per ton on the London Metal Exchange, marking the highest level in nine years as tightening supplies, rising inflation and notions of significant infrastructure programs out of the U.S. and other countries led to expectations of increased demand.
Since strong COVID-19 vaccine efficacy data was first announced in November, traders have been positioning for the likelihood of a strong economic growth later this year, as the vaccine distribution eventually allows more businesses to reopen. As such, many traders have been rotating away from the high-growth tech stocks that led the indexes higher for much of last year. Instead, they have favored more economically sensitive equities and asset classes in anticipation of a post-pandemic recovery.
“Equity fund inflows have rebounded sharply during the past few months alongside optimism around an economic recovery. The rotation into equity funds has most favored strategies that benefit from accelerating economic growth,” Goldman Sachs strategists led by Arjun Menon said in a recent note, based on an analysis studying 507 equity mutual funds. “[Emerging market]-focused, small-cap, value and cyclical sector equity funds have experienced the largest inflows. The secular migration into ESG-focused funds has persisted, and we expect this trend will accelerate under the unified Democratic government.”
Moreover, about 57% of mutual funds have outperformed their benchmarks in 2021 so far, representing the highest share at this point in a year in nearly a decade, the strategists added.
9:44 a.m. ET: ‘It’s the right thing to do’: Yellen restates call for robust fiscal stimulus, reaffirms support for $1,400 direct checks
Treasury Secretary Janet Yellen doubled down on her call for another significant fiscal package to combat the COVID-19 crisis in the U.S., suggesting that the benefits of measures like President Joe Biden’s proposed $1,400 stimulus checks would ultimately do more good than harm to the economy.
“The principle of wanting to get money targeted to those who have suffered the most is an important and valid principle. And the American Rescue Plan does that in many different ways though targeted food assistance, unemployment compensation, some rental assistance for low income people who face eviction, and in other ways, and that’s pretty well-targeted,” Yellen told Andrew Ross Sorkin during The New York Times DealBook DC Policy Project webcast. “But the truth is, there are pockets of pain that go beyond what can be reached in those highly targeted ways.”
“Take the example of people who have had to drop out of the labor force because they have children who weren’t in school, so they face a loss of income. Many are not eligible for unemployment insurance. And some of those face food insecurity,” she added. “You’ve got 24 million adults who say they don’t have enough to eat … 15 million people who are behind on their rent. And it’s not so easy in a highly targeted way to help those people.”
“So my view would be that the checks for example, $1,400 checks. Of course we don’t want those to go to very high income individuals and households that have been less affected. But that really helps to make sure that pockets of misery that we know exist out there that aren’t touched by the more targeted things, that help is provided there as well,” she concluded.
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