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Banks, industrials lift Dow; Tech mega-caps drag Nasdaq lower

3 minute read

A Wall St. street sign is seen near the New York Stock Exchange (NYSE) in New York City, U.S., September 17, 2019. REUTERS/Brendan McDermid//File Photo

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  • Stocks sensitive to economy outperform the market
  • U.S. core capital goods orders, shipments rise in Aug
  • Indexes: Dow rises 0.34%, S&P down 0.29%, Nasdaq falls 0.72%

Sept 27 (Reuters) - The Nasdaq slipped on Monday as investors swapped technology heavyweights for stocks linked to economic growth amid increasing confidence in a recovery, helping the Dow mark small gains.

Seven of the 11 major S&P sectors advanced, with energy (.SPNY) jumping 3.5%, followed by financials (.SPSY) and industrials (.SPLRCI).

Banks (.SPXBK) rose 2.2%, tracking a rise in the U.S. 10-year Treasury yield , which briefly breached the 1.5% level.

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The small-cap Russell 2000 (.RUT) was up 1.7%.

Investors moved into value and cyclical stocks from tech-heavy growth names after the Federal Reserve last week indicated it could begin unwinding its bond-buying program by as soon as November, and may raise interest rates in 2022.

Although monetary tightening is frequently seen as a drag on stocks, some investors view the Fed's stance as a vote of confidence in the U.S. economy.

"Interest in the cyclicals will continue to be at the forefront of investors' minds as interest rates trend higher. This is the sort of go-to trade right now," said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York.

Meanwhile, new orders for durable goods surpassed pre-pandemic levels in August. read more

Investors will now watch for a raft of economic indicators, including inflation report and the ISM manufacturing index this week to gauge the pace of the recovery, as well as bipartisan talks over raising the $28.4 trillion debt ceiling. read more

"If we get past the budget process, which ends on Thursday, and can raise the debt ceiling and start the earning season, I believe Q4 will be pretty solid," said Randy Frederick, managing director of trading and derivatives for Schwab Center for Financial Research.

"If they push this (debt ceiling issue) down to the very limit, the markets will get volatile and there could be some pullback. So I'm hoping we can avoid that."

At 11:56 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 117.38 points, or 0.34%, at 34,915.38. The S&P 500 (.SPX) was down 13.07 points, or 0.29%, at 4,442.41, and the Nasdaq Composite (.IXIC) was down 108.59 points, or 0.72%, at 14,939.11.

A rise in yields to levels last seen in June also appeared to weigh on technology stocks, given that their future earnings will be discounted in comparison to higher returns on debt due to increased lending rates.

Mega-cap growth names Alphabet Inc (GOOGL.O), Microsoft Corp (MSFT.O), Amazon.com Inc (AMZN.O), Facebook Inc (FB.O) and Apple Inc (AAPL.O) slipped between 0.8% and 1.3%.

The S&P 500 Value index (.IVX) is down 0.6% so far this month, but has still outperformed its growth counterpart (.IGX).

Value has once again started to outpace growth stocks

However, the benchmark S&P 500 index (.SPX) is on track to break its seven-month winning streak on concerns related to higher potential corporate taxes and China Evergrande's (3333.HK) default.

Goldman Sachs strategists said the 2022 outlook for return-on-equity (ROE) on U.S. stocks is more challenging as margins stabilize and corporate taxes rise.

Advancing issues outnumbered decliners by a 1.73-to-1 ratio on the NYSE and by a 1.86-to-1 ratio on the Nasdaq.

The S&P index recorded 27 new 52-week highs and four new lows, while the Nasdaq recorded 82 new highs and 59 new lows.

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Reporting by Devik Jain in Bengaluru; Editing by Saumyadeb Chakrabarty and Maju Samuel

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