The S&P 500 was flat Wednesday, as a slip in U.S. bond yields supported tech but hurt bank stocks amid signs that investors are buying into the Federal Reserve's view that inflation is transitory ahead of Thursday’s consumer price report.
The S&P 500 rose 0.1%, the Dow Jones Industrial Average was down 0.1%, or 35 points, and the Nasdaq Composite was up 0.3%.
Easing worries that runway inflation is the horizon prompted investors to scale back their bearish bets on the Treasuries, forcing yields, which trade inversely to price, to move to levels not seen in a month.
The short-covering in Treasuries comes just a day ahead of the consumer inflation data, with economists expecting headline inflation at the fastest pace since 2008. But the sluggish action in bond yields suggests the market is betting that the Federal Reserve's inflation narrative could be the right call.
" [T]he bond market is signaling this [inflation] is all very transitory and has been quite supportive of what Fed chairman Jerome Powell, and most of the other fed governors have said," Rhys Williams (NYSE:WMB), Chief Investment Officer of the Opportunistic All Cap Equity Strategy at Spouting Rock Asset Management, said in an interview with Investing.com on Wednesday.
"With the 10-year Treasury yield at about 1.50% … clearly the market doesn't seem very nervous about this print as much as maybe individual portfolio managers are," Williams added.
Tech has found its footing, attracting bids from investors who had ditched the sector when fears on valuation ran deep following a jump in the Treasury yields early this year.
Apple (NASDAQ:AAPL), Google-parent Alphabet (NASDAQ:GOOGL), Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Facebook (NASDAQ:FB) were mostly higher.
These cohort of megacap growth, which have lagged the broader market for months, now offer "a very good risk to reward because the chances of losing all your money in these names in the event of a disastrous outcome for your portfolio is low," according to Williams.
Falling yields, however, were not welcomed in financials as regional and large bank stocks came under pressure amid concerns about lower net interest margin.
Charles Schwab (NYSE:SCHW) was down 3%, JPMorgan Chase & Co (NYSE:JPM) fell 1% and Citizens Financial Group Inc (NYSE:CFG) slipped 2%.
Energy stocks were pushed higher by rising oil prices after U.S. weekly crude inventories fell more than expected, strengthening optimism that energy demand is set to pick up over the summer months as international travel activity heats up.
In industrials, United Parcel Service (NYSE:UPS) slipped 5% after issuing guidance that failed to live up to market expectations.
There was shake up in the meme trade, with Clean Energy Fuels (NYSE:UUUU), and Workhorse Group the most talked stocks on Reddit’s WallStreetBets. Clover Health, pared some of its gains from a surge a day earlier.
AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), BlackBerry (NYSE:BB), and Bed Bath & Beyond (NASDAQ:BBBY) traded mixed.