Stocks and index ETFs are surging on Monday, as investors find relief from spiking Treasury yields last week, pushing inflationary concerns into the background to start the month.
The Dow Jones Industrial Average popped 660 points, or 2.2%, while the S&P 500 added a similar 2.1% as all 11 sectors were positive to start March. The Nasdaq Composite, which was battered last week, also climbed 2.35%.
Major stock ETFs are all jumping on Monday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all higher just after 11:30 AM EST.
The yield on the 10-year Treasury yield slipped to 1.43% on Monday, after its recent drive to 1.6% on Thursday. Stocks and index ETFs were cagey last week given that climbing rates can damage the attractiveness of equities and compress stock valuations by diminishing the value of future cash flows.
“Equity investors are still looking at the rise in rates mostly as ‘a good thing’ and not yet as a threat notwithstanding some shaking of the tree in high multiple stocks and other parts of the market last week,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The benefits of the vaccines vs the challenge of higher rates will be the theme this year.”
Johnson & Johnson Vaccine Approved
Johnson and Johnson’s vaccine was approved by the CDC this weekend, lifting sentiment on the vaccine front. The Centers for Disease Control and Prevention advisory panel voted unanimously Sunday to recommend the use of Johnson & Johnson’s one-shot coronavirus vaccine for people aged 18 years and older.
The move is helping to buoy biotech ETFs like the iShares Nasdaq Biotechnology ETF (IBB) and the Principal Healthcare Innovators Index ETF (BTEC).
Last week was a rough week for equities and index ETFs, with the Dow and S&P 500 dropping 1.7% and 2.5%, respectively. The technology-heavy Nasdaq suffered even more damage, tumbling over 4% during the same period and undergoing its worst one-day sell-off since October on Thursday, as interest rate concerns plagued tech stocks.
“The outsized rotation suggests there could be some tactical reversal if yields settle down,” Keith Parker, equity strategist at UBS, said in a note. “Earnings should more than offset rate headwinds through the course of the year albeit with pockets of downdrafts in that uptrend.”
Meanwhile, the House passed a $1.9 trillion Covid relief bill, the American Rescue Plan Act of 2021, early Saturday, which will now head to the Senate for consideration.
Despite last week’s fall, the key stock benchmarks gained for the month of February, aided by a robust earnings season, optimism over the vaccine rollout, and hopes of another stimulus package.
The Dow gained 3.15% for its third positive month in four in February. The S&P 500 climbed 2.61%, and the Nasdaq Composite added almost 1% to notch its fourth consecutive month of gains.
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