Before The Bell - Stocks overcame early weakness on Monday, and the Dow Jones Industrials closed at a record high, but price action was mixed. Decliners easily outpaced the number of advancing issues on both the New York Stock Exchange and the NASDAQ. The energy and financial sectors lagged, after having been market leaders for the balance of 2021.
Trading began with the overhang of additional news of trouble in the form of a hedge fund that recently liquidated large positions. That brought back memories of similar incidences in the past, such as Long-Term Capital Management, requiring a bailout.
Concerns about contagion are greatest regarding financial companies, since they employ substantial borrowed funds.
So far, a few large foreign banks, including Nomura and Credit Suisse, have indicated their exposure to the troubled hedge fund could be a problem. More broadly, word of potential difficulties gave investors a reason to take profits in a number of banking names. Although it is too soon to tell, the situation could blow over with little or no widespread damage.
Elsewhere, energy shares were hurt by the announcement that the ship blocking the Suez Canal was cleared. Oil prices actually rose somewhat on the feeling that disruptions could linger for a few weeks, but that sentiment did not help energy-related shares.
In truth, too, energy demand typically falls off in the spring after the winter heating season and before fuel requirements rise in the summer. A bit of a soft outlook in the very near term may have contributed to the sector’s underperformance on the day.
Meantime, the tech space, last year’s big winner, is still grappling with some of the concerns that have held it back lately. High valuations remain a sticking point with the NASDAQ up an annualized 22% over the past three years.
Importantly, as well, is the sense that the specialized capabilities tech companies provided during the pandemic may not be a necessity before long once the economy fully reopens. Vaccinations are accelerating, and there is greater optimism that everyday life will be closer to normal by the summer.
Overall, the session had a defensive tone, with shares of utilities and consumer staples companies faring the best.
At the close, the Dow Jones Industrial Average was up 98 points; but the NASDAQ fell 79 points; and the S&P 500 slipped a few points. Small-cap stocks also pulled back, with the Russell 2000 Index declining 2.8%.
Stock futures are drifting lower about an hour before the opening bell. - Robert Mitkowski