Shares are climbing, keep pace for weekly gains

Equities have struggled to provide direction in recent sessions as investors have weighed signals that the US economy is poised for a period of rapid growth, despite concerns about rising bond yields.

Beneath the surface, major movements have occurred in individual stocks and sectors. The recent rise in bond yields has coincided with a waning interest in some of the momentum-driven transactions that had dominated most of the past year.

Investors have pulled out of both tech darlings and specialty acquisition companies known as SPACs. An exchange traded fund tracking SPACs, Defiance Next Gen SPAC Derived ETF

LEVER -1.23%

is down about 8.7% this week. Shares of Facebook and Netflix have fallen 3.3% and 1.6% respectively during that period.

Meanwhile, trading in bullish call options linked to stocks has also calmed down. Call options volume hit its lowest level of the year this week, Trade Alert data shows, a sharp shift from earlier in the year as investors wanted to bet on explosive equity gains.

Higher yields have posed a particular problem for technology company stocks, calling their current valuations into question when a large portion of their earnings will not be realized in the near future. A stronger dollar, signs of growing US-China strategic rivalry, tense global supply chains and the prospect of a rise in inflation have also left the stock market unsettled, investors say.

“In general, things look pretty good, but it’s a very unstable environment,” said Suzanne Hutchins, Head of Real Return Investments at Newton Investment Management.

Ms. Hutchins said she expects a booming US economy to fuel further gains for equities.

Spending by US households fell 1% during a period of cold weather in parts of the country in February, data from the Department of Commerce showed. Personal income fell by 7.1%.

In the bond market, the yield on 10-year Treasury bills rose to 1.614% on Thursday, according to Tradeweb. At the beginning of January it was only 0.915%. Yields rise when bond prices fall.

“We’ve seen a tremendous change in 10-year earnings since the start of the year,” said Ms. Hutchins. “Right now, the market is digesting that movement.” She thinks 10-year yields could go up to 2% without causing serious problems for stocks.

The 10-year return has pulled back from recent highs of more than 1.7%. That may be in part because pension funds are rebalancing their portfolios towards the end of the quarter by buying bonds, Ms. Hutchins said.

On Friday, shares of major banks, including Morgan Stanley and Citigroup, rose shortly after the opening bell. Morgan Stanley added 0.5%, while Citigroup added about 1%, outperforming the broader market. The Federal Reserve said on Thursday that the temporary limits on dividend payments and share buybacks will end after June 30 for most lenders.

Traders continued to monitor the blockage caused by a container ship grounding in the Suez Canal, a passage for crude oil and petroleum products. Shipping industry members warned that resuming traffic through the canal could take days, if not weeks.

Shares were good in the overseas markets. The Stoxx Europe 600 rose 0.8%.

China’s Shanghai Composite Index, Japan’s Nikkei 225 and Hong Kong’s Hang Seng were all up about 1.6% at close.

Write to Joe Wallace at [email protected] and Gunjan Banerji at [email protected]