S&P 500 ends slightly higher ahead of Powell testimony, upcoming data

By Sinéad Carew and Bansari Mayur Kamdar

(Reuters) – The S&P 500 made little progress on Monday, closing slightly higher than its session low as U.S. Treasury yields pulled higher with investors braced for this week’s testimony from Federal Reserve Chair Jerome Powell and the February jobs report.

The session started much better than it did earlier, when the Nasdaq was up over 1% and then slowly lost its gains. Apple Inc, the iPhone manufacturer and Goldman Sachs’ coverage of the event with a “buy” rating.

However, equities lost earlier gains when yields on U.S. 10-year Treasury Notes and 2-year Treasuries yields recovered from early declines following data showing that new U.S.-made goods orders fell below what was expected in January.

Rising bond yields have an effect on equity valuations. They are particularly relevant for growth and technology stocks. Higher rates decrease the value of future cash flows.

Graphic: The correlation between S&P 500 and 2 year Treasury bond yields https://fingfx.thomsonreuters.com/gfx/mkt/dwpkdzydovm/bondsequities.PNG

“The market is in a holding pattern because this week will be key to shedding light on what’s going on with the U.S. economy,” Irene Tunkel was chief U.S. equity strategist.

BCA Research, New York will be closely monitoring Friday’s U.S. Non-farm Payrolls Report.

“People are worried about the jobs number and the economic data because they’re worried about what the Fed will do. Ultimately all roads lead to the Fed.”

With potential Fed rate increases being their main concern, Monday’s data already dampened investor excitement, according to Shawn Cruz (head trading strategist, TD Ameritrade Chicago).

“The market pullback was because there is still a lot of work to do on inflation,” Cruz. “We’re not seeing the type of demand slowdown we need to see. The whole point of the Fed hiking rates is to slow down the economy.”

According to preliminary data, the S&P 500 gained 2.72 points, or 0.07%, to end at 4,048.36 points, while the Nasdaq Composite lost 12.59 points, or 0.11%, to 11,676.41. The Dow Jones Industrial Average rose 38.69 points, or 0.12%, to 33,429.66.

On Monday, the commodity-linked material sector suffered after China set an lower than expected target of 5% economic growth for this year.

Following comments from Fed policymakers, three of the main U.S. stockindices rose on Friday. They recorded weekly gains.

Mary Daly of the San Francisco Federal Reserve Bank stated on Saturday that, if there is more inflation than anticipated and data from the labor market continue to be hotter than expected then interest rates will need to rise higher and stay there for longer than Fed policymakers projected in December.

The Fed’s next rate hike plan will be a topic of interest to investors when Powell is testifying before Congress on Tuesday or Wednesday. The Fed has been announcing strong economic data since Powell spoke last. Inflation that is higher than anticipated have raised fears about raising rates or keeping them higher longer than they should.

Traders anticipate at least three additional 25-basis point hikes in this year’s market and expect interest rates to peak at 5.44% by September, up from 4.67% currently.

Shares of cryptocurrency-related companies were volatile after Silvergate Capital Corp pulled the plug on its crypto payments network and raised doubts about the company’s ability to stay in business.

(This article has been updated to clarify that the closing price of S&P 500 was slightly higher than its session low but not less than its session highest.

(Reporting by Sinéad Carew, Sruthi Shankar, Bansari Mayur Kamdar and Shristi Achar A in Bengaluru; Editing by Vinay Dwivedi, Anil D’Silva and Richard Chang)