Topline
Stocks tanked Monday as geopolitical concerns added to inflation concerns and put more pressure on financial conditions, a familiar but nightmarish tale for bullish investors hoping for stock indexes to hold their record levels.
Markets got off to a poor start to the week.
Key Facts
After sitting positive for much of Monday fresh off of its worst week of 2024, the S&P 500 turned negative and ended the day down 1.2% at 5,062, its lowest closing price since Feb. 21.
The blue chip Dow Jones Industrial Average and tech-heavy Nasdaq fell 0.7% and 1.8%, respectively, with Salesforce’s 7% loss and Tesla stock’s 6% drop leading the negative charge.
The equity selloff came as bond yields sharply increased as the market moved into less risky bets as Israel’s anticipated response to Iran’s weekend drone strikes underscored escalating violence in the Middle East.
Yields for 10-year U.S. Treasury notes jumped 12 basis points to over 4.6%, their highest level since Nov. 13, and similar rises in short-term government bonds indicate the market’s hopes are fleeting for a near-term reduction in interest rates.
Higher yields weigh on stock prices for several reasons, chiefly because they make debt financing more expensive for the many companies who rely on debt offerings to operate, and they make investors more prone to keep their money in bonds, where there is a safer rate of return than in equities.
Chief Critic
“Despite the nervous tenor of markets, the relative resilience of equity markets in the face of a wave of nerve-wracking data is impressive,” according to Mark Hackett, Nationwide’s chief of investment research.
Key Background
The S&P is about 4% below its record high achieved March 28, which may be painful for many investors is well within historical bounds. The April slump coincides with diminished expectations the Federal Reserve will meaningfully trim interest rates in 2024, hopes that would bolster companies’ earnings power and relative valuations but were dashed by a series of concerning inflation reports. The combination of higher yields, conflict abroad and stock losses is reminiscent of 2022’s brutal selloff that was partially caused by Russia’s invasion of Ukraine and its impact on global energy prices. Also tanking Monday afternoon was the world’s largest cryptocurrency, bitcoin, which fell more than 3%. Bitcoin is about 14% off of its March high, but it has pared losses from its nearly immediate 10% loss Saturday when news broke of Iran’s strike on Israel.
What To Watch For
How companies can deliver during the recently kicked-off earnings season, which will see the first round of 2024 financial results and help shine light on whether the market’s high valuations are justified. “Earnings beats will be crucial to try to support the market,” Mislav Matejka of JPMorgan’s top global equity strategist, wrote to clients Monday.
Further Reading
