Stocks Power Higher Again as Treasury Yields Ease

Stocks are climbing again on Monday as markets around the world continue to claw back from their sharp tumble last month.

The Standard & Poor’s 500 index has regained nearly two thirds of its 10.2 percent loss since setting its record a month ago. Treasury yields, which have been at the center of worries for stock investors, eased.

KEEPING SCORE: The S&P 500 was up nearly 27 points, or 1 percent, to 2,774, as of 2:10 p.m. Eastern time and on track for its third straight gain. The Dow Jones industrial average rose 365, or 1.4 percent, to 25,675, and the Nasdaq composite gained 72, or 1 percent, to 7,409.

RATE WATCH: A jump in interest rates was what triggered the sell-off for stock markets around the world last month. That’s why an appearance this week by the Federal Reserve’s chairman is so anticipated.

Jerome Powell is scheduled to deliver his first testimony as chairman of the Fed to Congress, and he’ll speak about monetary policy before the House of Representatives’ financial services committee Tuesday morning. Investors will dissect it immediately for clues on how aggressive the Fed will be in raising interest rates to forestall inflation.

Treasury yields have been climbing over the last month for a range of reasons, including higher expectations for inflation, a strengthening U.S. economy and the U.S. government’s increased need to borrow.

YIELDS: Treasury yields pulled back on Monday from the four-year high they hit last week. The yield on the 10-year Treasury note fell to 2.85 percent from 2.87 percent late Friday. The two-year yield, which is influenced more by expectations of movement by the Fed, fell to 2.22 percent from 2.27 percent. The 30-year yield, which is influenced more by expectations for inflation, sank to 3.14 percent from 3.16 percent.

Higher interest rates can hurt stock prices by making bonds look more attractive as investments, and Wall Street is split on how high they can climb. Most of Wall Street is anticipating a gradual increase, as the Fed slowly moves short-term rates higher.

One exception is Morgan Stanley, where strategists say the 10-year Treasury yield could fall back below 2 percent by the end of the year.

STRONG EARNINGS: One driver for stocks in recent weeks is how impressive corporate profit reports have been.

Roughly 90 percent of S&P 500 companies have said how much they earned during the last three months of 2017, and three quarters of them made more than analysts expected, according to S&P Global Market Intelligence. More important to investors is that 75 percent of companies made more in revenue than expected. Revenue growth is on pace to be the best since the summer of 2011, according to FactSet.

QUICK REBOUND: Other than the drop in rates, analysts saw few clear reasons to drive stocks much higher on Monday. Earnings reporting season is mostly done, and no big-ticket economic reports were on the calendar.

“Today’s rally has been very surprising,” said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. “There doesn’t seem to be a real obvious catalyst, yet we’re having a banner day. It might be good to be a little careful here.”

Even when looking back at the last couple weeks, Frederick said the recovery for stocks may have come too quickly. If the S&P 500 is able to set another record high in the next few weeks, he said he’d prepare for the possibility of another quick downturn. “I’d prefer it to slow down a bit here,” he said.

MARKETS OVERSEAS: In Europe, France’s CAC 40 rose 0.5 percent, and the German DAX gained 0.3 percent. The FTSE 100 climbed 0.6 percent.

In Asia, Japan’s Nikkei 225 index rose 1.2 percent, and the South Korean Kospi added 0.3 percent. China’s Shanghai composite jumped 1.2 percent.

COMMODITIES: Benchmark U.S. crude oil rose 43 cents to $63.98 per barrel. Brent crude, the international standard, gained 26 cents to $67.57.

Natural gas rose 2 cents to $2.68 per 1,000 cubic feet, and gold added $2.50 to settle at $1,332.80 per ounce.

CURRENCIES: The dollar inched up to 106.99 Japanese yen from 106.75 yen late Friday. The euro rose to $1.2307 from $1.2295, and the British pound dipped to $1.3961 from $1.3967.