Market Commentary US markets roar back after Friday’s tumble
• After one of the worst trading days in months on Friday, the Dow Jones Industrial Average gained 587 points, or 1.76%, while the S&P 500 was up 1.4%. Part of the market’s rebound on Monday was a revived reflation trade, at least to some degree. Value stocks, which are more sensitive to inflation and economic growth, outperformed the market.
• The price of WTI crude oil also rose 2.7% to just above US$73 a barrel. The price hit a fresh one-year high of US$73.95, before moderating.
• Banks stocks were also having a strong day, powered by rising long-dated bond yields and falling short-dated yields. The 10-year Treasury yield rose to 1.49% from 1.44% at Friday’s close, while the 2-year yield was down a tick. Rising long-dated bond yields signify that investors acknowledge current inflation and economic growth, which provides a bigger boost to earnings for more mature cyclical companies than it does for technology firms.
• In Asia, Japan was in the spotlight earlier on Monday as its key index took a tumble, hit by growing concerns about a potential US policy rate increase. The Nikkei Stock Average fell 3.3%, its biggest percentage point drop since 26 Feb. Chinese stocks advanced, outperforming regional markets, thanks to gains in the aerospace sector and steelmakers. The Shanghai Composite Index rose 0.1%, the Shenzhen Composite Index rallied for the third session with a 0.7% gain, while the ChiNext Price Index added 1.0%. Hong Kong’s Hang Seng Index, however, lost 1.1% lower, in line with broad declines among other Asian equities as investors continued to digest the Fed’s hawkish turn last week. Tech stocks contributed to the losses. The Straits Times Index fell 0.84% to the lowest closing level since 20 May after the previous session’s increase.