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U.S. stocks on Monday were on track to end mixed, as traders assessed the ramifications on global oil demand and inflation from a surprise OPEC+ production cut.
Bond yields fell while technology stocks ate into their recent advance as market participants dumped risk-on assets after a key U.S. gauge of factory activity contracted more than expected.
Into the final hour of trading, Wall Street’s major averages were near their session highs.
The tech-heavy Nasdaq Composite (COMP.IND), coming off its best quarterly performance since June 2020 on Friday, was now down 0.54% to 12,156.44 points. Big tech names fell, after having made strong gains over the past two weeks.
The benchmark S&P 500 (SP500) was up 0.22% to 4,118.49 points. The blue-chip Dow (DJI) was in the green, up 0.92% to 33,579.50 points, boosted by gains in Chevron (CVX), UnitedHealth (UNH) and Walgreens (WBA).
Of the 11 sectors, seven were now trading the green. Of the losers, Real Estate and Consumer Discretionary fell the most.
The Energy sector surged more than 5% and energy stocks made strong gains, rising in tandem with crude prices (CL1:COM) (CO1:COM) which ripped more than 6%. The big jumps came after the oil-producing nations, including Saudi Arabia and Russia, agreed on Sunday to curtail production by another 1.16M barrels per day. For the Federal Reserve, higher oil prices would put pressure on their job to lower inflation.
St. Louis Fed President James Bullard in an interview on Bloomberg Television said that the production cut decision was unexpected and acknowledged that an increase in oil prices would make their target of lowering inflation more challenging.
Meanwhile, closer home, the ISM manufacturing purchasing managers index dropped to 46.3 in March, compared to a consensus of 47.7. It was the reading’s fourth straight month of contraction after 30 months of expansion.
“While some parts of the service sector demonstrate resilience to the fastest rate hikes in a generation, the message from today’s ISM manufacturing index is that the factory sector is reeling. The headline measure fell to its lowest since 2020, and every sub-component is below 50,” Wells Fargo’s Tim Quinlan said.
‘The closest thing we get to good news in today’s report is that the slowing in the factory sector is pushing prices lower and supply chains are continuing to heal, benefiting from the slack … Beyond that, the rest of the themes were those that often precede an economic recession: new orders and production are contracting, so much so that production is being transitioned to deal with backlogs,” Quinlan added.
Treasury yields reversed course after the ISM data. The longer-end 10-year yield (US10Y) was now down 6 basis points to 3.43% and the more rate-sensitive 2-year yield (US2Y) had slipped 8 basis points to 3.98%.
Expectations around the Fed’s move at its next monetary policy committee meeting in May continued to fluctuate. After the release of the ISM data, the odds shifted slightly in favor of no hike to more than 50%, but has now moved back towards a ~58% probability of a 25 basis point hike, according to the CME FedWatch tool.
Among other active stocks outside of energy, Tesla (TSLA) was the biggest percentage loser on the S&P 500 (SP500) as investors parsed its Q1 vehicle deliveries report while weighing the possible consequences of the OPEC+’s production cut on the electric vehicle sector.
