In the session on Monday, US stock indices dropped on the back of a record rise in the yield of the 10-year Treasury note.
As a result, all three major indices – the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite – sank by 0.1%, having settled at 34,411.69, 4,391.69, and 13,332.36 respectively.
The major outsiders among the DJIA companies were the securities of Walt Disney Co. (-2.1%), Honeywell International Inc. (-1.6%), and Home Depot Inc. (-1.4%). The best performers were Goldman Sachs Group Inc. (+2.7%) and Intel Corp. (+2.1%).
Bank of America Corp's shares rose by 3.4% on Monday. In the first quarter of the financial year, the bank's net profit fell by 12%. Despite this, the final earnings report exceeded analysts' expectations as the total revenue increased by 2%.
The Bank of New York Mellon securities dropped in value by 2.3% as the company's report showed a decline in profit for the first quarter. At the same time, earnings per share turned out to be higher than market forecasts.
Shares of the Chinese taxi aggregator Didi Global Inc. plunged by 18.5% yesterday after the company reported a 12.7% drop in revenue in the fourth quarter of 2021.
The share price of Natus Medical Inc., a developer, manufacturer, and supplier of screening devices, surged by 29%. As was reported earlier, Natus Medical is being acquired by investment company ArchiMed for $1.2 billion.
The value of Southwest Gas Holdings Inc. went up by 5.7% following the reports that the company is considering various scenarios for its future development, including a possible sale.
On Monday, the price of US government bonds continued to decline, while the yield of the 10-year Treasury bills increased by 4 basis points and soared to 2.861%. This was the highest closing rate since the end of 2018. So, the bond yield has gained more than half a percentage point since early April.
As a rule, a rise in US Treasury yield puts pressure on risk assets. This rule is especially evident in the case of tech stocks and consumer cyclical companies.
This week, markets will closely watch the steps of the US Federal Reserve who intends to increase the interest rate in the near future. The regulator is trying to cap running inflation and save the US economy from significant damage.
At the same time, investors believe that measures taken by the Fed are not enough to tackle inflation. They hope that at its next meetings in May and June, the US central bank will increase the benchmark rate by 0.5 percentage points. Last month, the Fed raised the rate by 0.25 percentage points to 0.25% -0.5%.
Recently, analysts at one of the world's largest investment banks, Goldman Sachs Group Inc., have warned that there is a 35% chance of a recession in the US in the next two years. Therefore, the US Federal Reserve should tighten its monetary policy to the extent where it will help reduce job openings without sharply rising unemployment.
Goldman Sachs notes that achieving a so-called "soft landing" may be tough because historically the gap between jobs and the labor force has narrowed significantly only during recessions.
In addition, market participants will closely monitor the financial reports of the country's leading corporations. Such popular investor choices as Netflix, Tesla, Johnson & Johnson, Snap, Twitter, and United Airlines will reveal their earnings reports this week.
The financial results of the US corporate giants will show how successfully these companies are coping with the permanently rising inflation.
