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Dow Notches 4-Day Winning Streak While Tech Stocks Fall


The Dow Jones Industrial Average rose Monday as bond yields rose and oil prices climbed to their highest level in three years.  

Rising Treasury yields—the 10-year has ticked up to 1.48%—help explain the divergence. Last week, the Federal Reserve signaled that it is nearly ready to reduce, or taper, the amount in bonds it is purchasing each month, and markets are also taking potential hikes to interest rates in stride, betting that such a move won’t disrupt the economic recovery. 

Value stocks, which tend to be more economically sensitive than fast-growing stocks like many in the technology space, gained Monday and helped to explain the Dow’s outperformance.

Bank stocks soared. The SPDR S&P Bank Exchange-Traded Fund (KBE) rose 3.5%. When long-dated bond yields rise faster than short-term interest rates, as has been the case in the past several trading days, banks can lend at higher rates and borrow at still-low rates. That boosts profitability.

“There is not only a value/cyclical bias being seen in equity markets, its also a re-opening bias,” writes Michael Reinking, senior market strategist at New York Stock Exchange. “The continued move higher in rates is at the center of this rotational activity.” 

International oil benchmark Brent futures changed hands near three-year highs, up earlier in the day, before dipping slightly. The oil contracted was trading at around $78 a barrel. U.S. oil futures rose 2% to above $75.

This could pressure OPEC to ramp up its production increases. “If momentum is sustained, pressure will grow on OPEC+ to speed up the pace that it increases output,” writes Craig Erlam, senior market analyst at Oanda. 

Durable goods orders rose 1.8% month-over-month in August, higher than the expected 0.7% increase. “The data show strong demand, but also supply-side constraints that are in some cases restraining final consumption of durables,” wrote Citigroup economist Andrew Hollenhorst. 

While many stocks are flourishing, the broader market still shows that investors are uncertain about the future. The


CBOE Volatility Index,

which measures expected volatility, advanced 3.5%. While the S&P 500 is trading near its 50-day moving average of 4,441, a key technical indicator, it briefly fell below that level several times during the day. 

For the immediate term, investors are hoping that Congress can pass a reconciliation bill and a debt ceiling agreement soon and avoid a government shutdown. 

Regarding the economic and earnings outlook for the months ahead, companies will soon report third-quarter earnings. Already, some have posted disappointing results and guidance because supply chain constraints are disabling companies from meeting demand and creating higher costs, which dent profit margins. 

Overseas, Hong Kong’s


Hang Seng Index

closed just below flat. Troubled China Evergrande may not survive its own financial woes, but the People’s Bank of China has already injected tens of billions of dollars into the banking system, making it clear that it will not allow contagion. 

Germany’s


DAX

rose 0.3%, after weekend election results showed the center-left Social Democrats pulling ahead, giving leader Olaf Scholz the mandate to form a government.

Also read: The Stock Market Has Put China Evergrande Concerns Behind It. Why That’s a Mistake.

Here are 13 stocks on the move Monday:

With oil prices rising, oil producers




Occidental Petroleum

(ticker: OXY) and




APA Corp.

(APA) were seeing their shares rise 7.4% and 6.2%, respectively. 

Amazon.com (AMZN) stock fell 0.6% after analysts at Morgan Stanley said higher wages will dent the company’s profits.




Bath & Body Works

(BBWI) stock rose 1.8% after getting upgraded to Overweight from Neutral at Atlantic Equities. 

Public Service Enterprise Group (PEG) stock was rising 0.9% after the company said it is increasing its dividend payment and will buy back $500 million of stock




Hyatt Hotels

(H) stock was up 0.7% even after getting downgraded to Underperform from Neutral at Bank of America. 

 




BP

(BP.U.K.) rose 3.5% and




Royal Dutch Shell

(RDSA.U.K.) was up 4.5% in London while




Total

(TTE.France) climbed 3.4% in Paris.

Evergrande’s electric-vehicle arm,




Evergrande New Energy Auto

(0708.H.K.), sank 9.4% in Hong Kong as the cash crisis at its parent company spread. The car company has warned of a shortage of funds and canceled a stock market listing in Shanghai. The stock is down 93.4% year-to-date.




Rolls-Royce

(RR.U.K.) rose 11.3% in London, after the British engineering group won a major contract to provide engines for the U.S. Air Force’s B-52 Stratofortress.

Macau has tightened up travel restrictions amid concerns around Covid-19, adding pressure to the already weakened gaming sector in the world’s largest gambling hub.




China Sands

(1928.H.K.) fell 4%,




Wynn Macau

(1128.H.K.) slipped 4.5%, and




MGM China

(2282.H.K.) tumbled 10.4% in Hong Kong.

Write to editors@barrons.com



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