Stocks Close Mixed, Losing Steam as Bond Yields Plunge

A disappointing U.S. manufacturing result pushed bond yields lower, sending a negative signal to stock investors. 

Economic data have shown a continued expansion this week across the globe, though they missed estimates at home. In the U.S., the Institute for Supply Management’s manufacturing survey read 59.5 for July, solidly in expansion territory, though missing the estimated 60.9 and below the previous month’s reading of 60.6. Purchasing mangers index readings in Europe and the United Kingdom came in ahead of and in-line with estimates, respectively. 

The 10-year Treasury yield, which often rises and falls with expectations about economic growth and inflation, dropped to as low as 1.15% from 1.23% to start trading. The yield closed at 1.17%. Yields fall when prices rise.

“July’s ISM Manufacturing was light, sparking a rally in the 10 year U.S. Treasury [bond] that sent its yield down,” writes Christopher Harvey, chief U.S. equity strategist for Wells Fargo.

While economic growth seems to have peaked, better-than-excepted earnings for the second quarter were supporting stock gains in the morning. The aggregate earnings per share beat on the S&P 500 has been by 16.2%, according to Credit Suisse. 

Another factor supporting the optimism on economic growth that was seen in morning trading: The $1 trillion infrastructure spending bill is seen as likely to pass soon. That would create jobs and provide a particular benefit to several industrial stocks. 

But economically-sensitive sectors like industrials and oil producers had been leading the market this morning, before those sectors took a back seat.  About 46% of S&P 500 stocks rose, according to FactSet, down from 80% earlier.

In Asia, Hong Kong’s Hang Seng rose 1.1% while the Shanghai Composite climbed 2% and Tokyo’s Nikkei 225 lifted 1.8%. The FTSE 100 in London was 0.8% higher as the pan-European Stoxx 600 was up 0.6%. The CAC 40 in Paris moved 1.1% into the green and Frankfurt’s DAX was 0.3% higher.

After last week’s volatility, caused in large part by a regulatory crackdown in China against technology, finance, education, and healthcare companies, markets are headed for another week packed with earnings and economic data.

“As we enter August and what is set to be a period of higher than normal holiday taking, given the events of the last year and a half, we’ll likely have to wait until Friday for the main event. That is of course payrolls,” said Jim Reid, a strategist at Deutsche Bank.

“Don’t forget the U.S. infrastructure bill which seems to be making progress in the background after senators agreed text to a bipartisan bill that they hope to vote on this week,” Reid added.

In central bank news, in a speech late Friday, U.S. Federal Reserve governor Lael Brainard indicated that the Fed wouldn’t announce a tapering of its bond purchases at the end of the month, when the Jackson Hole economic summit is hosted.

“I expect to be more confident in assessing the rate of progress once we have data in hand for September, when consumption, school, and work patterns should be settling into a post pandemic normal,” Brainard said.

Analyst Michael Hewson of CMC Markets said that “only a few weeks ago the talk was of whether central banks would feel confident enough to start scaling back some of the stimulus measures that have been in place since the start of the pandemic, as the global economy recovers.” Now, Hewson said, the narrative appears to have shifted to whether the economic rebound has already started to plateau or slow down.

More than a quarter of the companies in the S&P 500 index will post earnings this week. Heineken, Ferrari, Take-Two Interactive, and NXP Semiconductors are among those reporting results on Monday.

“The main concern for markets now appears to be about whether the second half of the year will be able to match up to some of the decent numbers we’ve seen from the various company updates,” Hewson said.

ON Semiconductor  (ticker: ON) stock rose 11.7% after reporting a profit of 63 cents a share, beating estimates of 49 cents a share, on sales of $1.67 billion, above expectations for $1.62 billion.

Square  (SQ) stock rose 10.2% after reporting a profit of 40 cents a share, beating estimates of 30 cents a share, on sales of $4.68 billion, below expectations for $5 billion. 

Newell Brands  (NWL) stock gained 0.4% after getting upgraded to Equal Weight from Underweight at Wells Fargo. 

Capri Holdings  (CPRI) stock rose 1.5% after getting upgraded to Buy from Neutral at MKM Partners. 

Teladoc Health  (TDOC) stock rose 1% even after getting downgraded to Hold from Buy at Argus. 

Write to Jack Denton at jack.denton@dowjones.com.