Stocks narrowly eked out fresh record levels as traders awaited a key monetary policy decision from the Federal Reserve.
The S&P 500 pushed into positive territory in the final minutes of trading, logging a fresh record close. The Dow ended lower, while the Nasdaq gained and set its own record closing level. Treasury yields advanced, and the benchmark 10-year yield hovered just below 1.5%.
U.S. stocks are hovering at record levels, powered to fresh highs by a combination of rebounding economic activity and corporate profits, and a bevy of ongoing support from both fiscal and monetary policymakers. The duration of this monetary policy support will come into focus this week with the Federal Reserve's policy decision and press conference on Wednesday. With the economy improving from its pandemic-era lows and prices jumping as demand recovers, market participants have been closely monitoring Fed officials' comments to determine when the central bank might start rolling back its crisis-era policies.
The Fed has signaled the first course of action would involve easing its asset purchase program, which is currently taking place at a pace of $120 billion per month. The Fed has said it is looking for "substantial further progress" toward its goals of reaching maximum employment and price stability before beginning this roll-back, leaving investors to contemplate what degree of economic improvement might fulfill this prerequisite. Though the U.S. economy has made strides in recovering, the labor market remains more than 7 million jobs short of pre-pandemic levels. And core producer and consumer prices have surged over last year, albeit at elevated levels that will likely not be sustained over the coming months.
"Tapering is going to happen over the next few months; the only questions are when, and at what pace," Ian Shepherdson, chief economist for Pantheon Economics, wrote in a note Monday morning. "A month or two either side of the year-end, or a few billion faster or slower tapering, won't make much difference to how the economy performs over the next couple years."
"The obsession with tapering is a distraction from the real issue, which is whether increased underlying inflation pressure means that the Fed will have to begin raising rates sooner than it currently expects, which is at some point after 2023," he added.
Meanwhile, as traders await a definitive start to taper talk from the Fed, a number of strategists said they expect similar areas of the market that have outperformed so far this year to continue to do so. With the economy still on the upswing coming out of the pandemic and inflation poised to hold at a level higher than years' past for at least some time, cyclical and value stocks most levered to an economic reopening could remain areas of strength, some said.
"I don't think we've seen the exhaustion of that value-cyclical trade. Certainly, we would expect that we're going to see moderation and growth here in the second half of this year from the very heady pace of growth we've had over the last couple of quarters," Mark Luschini, chief investment strategist at Janney Montgomery Scott, told Yahoo Finance. "However, I still think we're going to see well above-trend economic activity, as a consequence of the more uniform reopening of the services industries ... lead to some emergence of inflation that is likely to percolate at an above-trend level over that which we've seen in the last decade or so."
4:02 p.m. ET: Stocks end mixed as traders look ahead to Fed decision; Technology shares outperform
Here were the main moves in markets as of 4:02 p.m. ET:
S&P 500 (^GSPC): +7.74 (+0.18%) to 4,255.18
Dow (^DJI): -85.39 (-0.25%) to 34,394.21
Nasdaq (^IXIC): +104.72 (+0.74%) to 14,174.14
Crude (CL=F): +$0.11 (+0.16%) to $71.02 a barrel
Gold (GC=F): -$12.10 (-0.64%) to $1,867.50 per ounce
10-year Treasury (^TNX): +3.9 bps to yield 1.5010%
1:05 p.m. ET: Dow trades at session lows
The three major indexes were mixed Monday afternoon, with technology stocks outperforming even as Treasury yields advanced and the 10-year yield broke back to 1.5%. The Nasdaq was the only major index in the green.
The Dow shed more than 260 points, or 0.8%, at its lowest point in the session Monday afternoon. Walgreens Boots Alliance, Caterpillar and Cisco dragged on the index, while Salesforce and Apple outperformed. The information technology and communication services sectors led in the S&P 500, though sharper declines in materials, financials and industrials kept the index in negative territory.
9:45 a.m. ET: 'Bet heavily on every inflation trade' if Fed keeps looking past high prices, hedge fund manager tells CNBC
Paul Tudor Jones, billionaire founder and chief investment officer of Tudor Investment Corporation, said investors should lean into asset classes that tend to benefit from higher-inflation environments if the Federal Reserve continues to ignore rising prices and leave monetary policy unchanged, according to an interview with CNBC on Monday.
"If they treat these numbers — which were material events, they were very material — if they treat them with nonchalance, I think it’s just a green light to bet heavily on every inflation trade,” Jones told CNBC's Squawk Box. Jones added he would "probably buy commodities, buy crypto, buy gold" in this environment.
Bitcoin (BTC-USD) prices rallied 13% to top $40,700 following the remarks, as well as after commentary from Tesla CEO Elon Musk that the electric car-maker might resume accepting the cryptocurrency as payment again in the future. Gold (GC=F) extended earlier losses and fell 1.5% to about $1,850 per ounce.
In April, core personal consumption expenditures (PCE) rose 3.1% over last year, coming in at an almost three-decade high. The Federal Reserve has maintained that these recent inflationary pressures will prove transitory and moderate once the economy laps last year's pandemic-depressed levels.
9:30 a.m. ET: Stocks struggle for direction at the open
Here's where markets were trading shortly after the opening bell Monday morning:
S&P 500 (^GSPC): -1.5 points (-0.04%) to 4,245.94
Dow (^DJI): -28.2 points (-0.08%) to 34,451.40
Nasdaq (^IXIC): -0.06 points (-0.00%) to 14,069.36
Crude (CL=F): +$0.64 (+0.9%) to $71.55 a barrel
Gold (GC=F): -$28.20 (-1.5%) to $1,851.40 per ounce
10-year Treasury (^TNX): +0.8 bps to yield 1.47%
7:28 a.m. ET Monday: Stock futures trade flat
Here's where markets were trading Monday morning:
S&P 500 futures (ES=F): 4,248.00, +2.25 points (+0.05%)
Dow futures (YM=F): 34,442.00, -20 points (-0.06%)
Nasdaq futures (NQ=F): 14,040.25, +46 points (+0.33%)
Crude (CL=F): +$0.40 (+0.56%) to $71.31 a barrel
Gold (GC=F): -$23.60 (-1.26%) to $1,856.00 per ounce
10-year Treasury (^TNX): +0.2 bps to yield 1.464%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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