Stocks finish flat amid high bond yields
NEW YORK – Stocks finished a wobbly session flat Monday as stubbornly high bond yields discouraged investors from extending Wall Street’s recovery from last week’s steep losses.
The yield on the Treasury’s 10-year note rose to 5.15 percent Monday from 5.11 percent late Friday. Last week, investors took signs of recalcitrant inflation to mean a rate cut by the Federal Reserve was unlikely, and they sent stock and bond prices tumbling; since yields move in the opposite direction from bond prices, market interest rates soared. The 10-year Treasury yield climbed above 5 percent for the first time since last summer.
The Fed has kept the federal funds rate, the interest banks charge one another for overnight loans, unchanged at 5.25 percent since last summer, following a string of increases over about two years.
“I don’t think that there is a lot of clarity as to monetary policy for the rest of 2007, and I think that in general puts markets on edge,” said Les Satlow, portfolio manager at Cabot Money Management. The back-and-forth direction of stocks is “a reflection of institutional ambivalence,” he said.
According to preliminary calculations, the Dow Jones industrial average rose 0.57, or less than 0.01 percent, to end at 13,424.96, capping a day of trading that saw stocks slip, advance and then pull back again. The Dow rose 157 points Friday, but still finished the week down 1.78 percent.
Broader stock indicators were narrowly mixed. The Standard & Poor’s 500 index rose 1.45, or 0.10 percent, to 1,509.12, and the Nasdaq composite index fell 1.39, or 0.05 percent, to 2,572.15.
Oil prices, which also stirred inflation concerns last week, rebounded Monday after falling sharply Friday. Iran’s oil minister said Monday the Organization of Petroleum Exporting Countries doesn’t plan to release more oil into the market ahead of its next policy meeting in September. Light, sweet crude rose $1.21 to $65.97 per barrel on the New York Mercantile Exchange.
Amid an absence of economic and earnings reports, investors will likely focus on moves of the bond market and individual stocks as they await data on inflation due later in the week. The Labor Department will release its producer price index Thursday, and the consumer price index is due Friday.
“The weakness in the bond market is a real concern for equity investors. We have been discussing for several weeks the possibility of a near-term equity market correction being triggered by technical factors. Higher bond yields now also provide a fundamental reason for investors to be wary over the short term,” wrote Bob Doll, BlackRock’s global chief investment officer of equities, in a research note.