Stocks in Choppy Trading as Bond Yields Top 1.6%: Markets Wrap

(Bloomberg) -- Stocks struggled for direction on Monday amid intense volatility in electric-car giant Tesla Inc. and a Treasury yield surge.

The S&P 500 came off session lows as Tesla pared losses after approaching a bear market, with an almost 20% plunge from a record. The company tumbled earlier in the day as Chief Executive Officer Elon Musk raised the idea of selling more of his shares. Treasuries slumped on speculation the Federal Reserve may have to speed up its reduction of asset purchases after the fastest inflation in three decades.

After a year dominated by relentless stock gains and a selloff in bonds, strategists have begun marketing their calls for 2022, with the threat of inflation looming large in investors minds. Morgan Stanley’s Mike Wilson expects the S&P 500 to slide to 4,400 in the next 12 months, implying a 6% drop from Friday. While profits are projected to extend their expansion, he warns that a growth slowdown and withdrawal of Fed stimulus will likely pressure valuations.

“We’re in a very tricky time,” said Ryan Jacob, chief investment officer of Jacob Asset Management. “We’re dealing with kind of a very, very unusual set of crosswinds in the economy that we need to kind of get past.”

It’s the third week of the month, when most equity options expire, and the event has repeatedly shaken up stocks this year. While history is not always a trustworthy guide, the S&P 500 has posted a 1% move -- in either direction -- in six of the past eight expiration weeks, data compiled by Bloomberg show.

Read: Futures Expiration Puts Global Bond-Market Liquidity to the Test

Global dividends just logged their best-ever third quarter, setting them on course to exceed their pre-pandemic peak by the end of 2021, according to Janus Henderson Investors. Pointing to improved balance sheets and optimism about the future, the money manager raised its estimate for total payouts to $1.46 trillion this year -- a faster rebound to an all-time high than forecast in its last report.

This week’s focus will be on the consumer strength, with Tuesday’s retail sales poised to show an acceleration and industry giants such as Walmart Inc. and Home Depot Inc. announcing their quarterly results. Robust spending on merchandise should continue to put pressure on global supply-chains, which are already straining to keep up.

Biden and Chinese leader Xi Jinping have plenty to discuss during their first virtual summit -- from sanctions to Taiwan -- even as expectations for a breakthrough on major issues are low. A Biden administration official said the U.S. expects the virtual summit at 7:45 p.m. on Monday night in Washington to last several hours, a time frame that includes translation for both leaders in their third conversation this year.

What to watch this week:

• Fed Presidents Thomas Barkin, Esther George, Raphael Bostic, Patrick Harker speak at various events. Tuesday
• Reserve Bank of Australia Governor Philip Lowe delivers a speech. Tuesday
• RBA minutes of November meeting. Tuesday
• U.S. retail sales are poised to show an acceleration in October as consumer demand remains resilient. Tuesday
• Euro zone CPI. Wednesday
• U.S. housing starts. Wednesday
• Conference Board U.S. leading index, initial jobless claims. Thursday
• Fed’s Richard Clarida and Mary Daly speak at Asia Economic Policy Conference. Friday

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.7% to $1.1366
• The British pound was little changed at $1.3412
• The Japanese yen fell 0.2% to 114.16 per dollar

Bonds

• The yield on 10-year Treasuries advanced six basis points to 1.62%
• Germany’s 10-year yield advanced three basis points to -0.23%
• Britain’s 10-year yield advanced five basis points to 0.96%

Commodities

• West Texas Intermediate crude was little changed
• Gold futures fell 0.2% to $1,865 an ounce

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