Nasdaq, Dow and S&P 500 slip, halting rebound amid renewed inflation fears

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Stocks edged lower on Monday, taking a breather after a substantial rebound last week. The major average fell during the middle of the session as inflation concerns returned to the market. This renewed caution came as oil prices rose and bond yields pushed sharply higher.

Shares cut their losses headed into the close but remained below the unchanged mark. The S&P 500 came close to scrambling into positive territory in the final minutes of trading. However, it continued to show a fractional loss by the end of the session.

The Nasdaq finished lower by 0.4%while the Dow posted a loss of almost 0.6%.

Looking at preliminary closing numbers, the S&P almost completely recovered from its midday swoon, eventually ending the session lower by just 1.94 points. This led to a close of 4,461.18.

The Dow declined 201.94 points to end at 34,552.99. Meanwhile, the Nasdaq recorded a concluding level of 13,838.46, a slide of 55.38 on the session.

Eight of the 11 S&P 500 industry sectors lost ground on the session, led by Consumer Services and Consumer Discretionary. However, none of the declining segments showed a loss of more than 1%.

Energy posted the best performance on the day. The move came as crude oil rose more than 7% to push back above $112 per barrel.

Meanwhile, bonds sold off as traders prepared for surging inflation fueled by soaring oil prices. The 2-year Treasury yield broke above 2%, jumping almost 17 basis points to reach 2.12%. The 10-year Treasury yield also rose about 16 basis points to almost 2.30%.

Citi’s strategy team, though, contends that jumping oil prices may not necessarily lead to a drop in global equities. “Global equity performance following oil shocks is inconsistent,” the group led by Robert Buckland said in a note. They note that the latest MSCI AC World trailing price/earnings (19x) looks expensive in relation to the average valuation of past oil shocks (16x), “but equities are currently much cheaper against bonds than they were back then,” the strategists said .

Kinsdale Trading is “cautiously optimistic that stocks are in the process of putting in a near-term bottom” and stabilizing in a 4,300-4,600 range for the S&P 500, according to a note to clients. That thesis, though, could fall apart if there’s a significant hawkish shift at the Fed, acceleration in economic growth data, or an inversion of the yield curve, the firm said.

Monday’s weak showing follows last week’s strong performance, as the Federal Reserve laid out plans for rate increases and indicated it will soon finalize a plan for shrinking its balance sheet.

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