Stocks retreated from their record highs on Monday, with the Dow Jones Industrial Average dipping for its first session in seven.
The Dow dropped about 100 points after hitting an intra-day high at the open. The S&P 500 fell 0.4% and the Nasdaq Composite lost 0.25%.
Stocks that will benefit most from a swift economic comeback from the pandemic led the gains. American Airlines and United Airlines shares were up 9% and 8%, respectively.
As a part of the $1.9 trillion stimulus package that became law last week, the IRS started processing $1,400 direct payments for millions of Americans, which is expected to add juice to the already recovering economy.
Air travel over the weekend hit its highest level in more than a year as the Covid-19 vaccine rolls out and Americans return to vacationing.
Stocks hit their lows of the day as Italy joined Germany, Ireland and the Netherlands in suspending the use of the coronavirus vaccine developed by AstraZeneca and the University of Oxford over blood clot concerns.
The 10-year Treasury yield was trading around 1.616% on Monday, after hitting its highest level in more than a year on Friday. The jump in bond yields has challenged growth stocks in recent weeks and sent investors into cyclical pockets of the market.
“Bond yields remain the primary risk facing the stocks market,” Jim Paulsen, chief investment strategist at the Leuthold Group, said. “However, they are calm so far this morning and as the speed of their recent advance pauses, it’s allowing investors to focus more on just how low yields remain overall.”
“Investors will have to continually grapple with the anxiety about economic overheating and Fed tightening that has gripped markets in recent weeks,” wrote David Kostin, Goldman’s chief U.S. equity strategist, in a note. “We believe equity valuations should be able to digest 10-year yields of roughly 2% without much difficulty.”
Stocks rose last week with the Dow rising 4% and the S&P 500 gaining 2.6%. The S&P 500 and the Dow both closed at record highs Friday. The Nasdaq Composite advanced 3% last week, despite a sell-off on Friday spurred by rising rates.
Investors will be gearing up for Wednesday when the Federal Reserve will deliver its decision on interest rates. The central bank is expected to acknowledge much better growth in the economy. Bond pros are also watching to see whether Fed officials will tweak their interest rate outlook, which now does not include any rate hikes through 2023.
On the vaccine front, Biden announced last week that he would direct states to make all adults eligible for the vaccine by May 1. Biden also set a goal for Americans to be able to gather in person with their friends and loved ones in small groups to celebrate the Fourth of July.
(Correction: An earlier version of the story misstated the title of Goldman’s Kostin.)
