Wall Street opens flat as the threat of high yields caps gains

Big 5

U.S. stocks kicked off Tuesday trading little changed as investors weighed the possibility of higher sovereign bond yields.

The Dow Jones industrial average rose just 5 points, with Goldman Sachs contributing the most gains. The S&P 500 slipped 0.05 percent, with financials leading decliners. The Nasdaq composite fell 0.1 percent.

Treasury yields have risen sharply over the past month amid hawkish central-bank rhetoric. In that time period, the benchmark 10-year note yield has climbed to around 2.38 percent from approximately 2.2 percent.

Similar moves have transpired in European bonds. The 10-year German bund yield has jumped to 0.55 percent from around 0.25 percent in the past month.

Stocks, meanwhile, have remained in a range in the past month, with the S&P 500 falling just 0.18 percent.

“[L]eadership continues to reflect an environment suggestive of higher rates and a risk-seeking attitude,” said Chris Verrone, head of technical analysis at Strategas Research Partners, in a note Tuesday. “Continued outperformance from groups like Banks, Capital Markets, Transportation, Machinery, and Homebuilders underscore this on the positive side. Conversely, many of the bond proxies have continued to deteriorate in both absolute and relative terms.”

“If stock prices discount expectation vs. reality, the market is likely telling us that the high-water mark in central bank policy has likely been seen,” he said.

Four Federal Reserve officials are slated to speak Tuesday, including Gov. Lael Brainard and Minneapolis Fed President Neel Kashkari. The speeches will lead up to Fed Chair Janet Yellen’s testimony Wednesday.

“Their heart is set on normalizing rates as quickly as possible,” said Nick Raich, CEO of The Earnings Scout. “We’ll see if they can do that.”

The Fed has raised rates twice this year and is expected to hike once more before 2017 ends. The central bank has also signaled its desire to start unwinding its massive $4.5 trillion balance sheet.

In economic news, the National Federation of Independent Business (NFIB) small business optimism index slipped to 103.6 in June from 104.5 in May. Wholesale trade and the Labor Department’s JOLTS (Job Openings and Labor Turnover Survey) report are also due at 10 a.m. ET.

In corporate news, Amazon.com held its annual Prime day, which features big deals for Amazon’s Prime customers.

Wall Street also geared up for the start of earnings season. JPMorgan Chase, Wells Fargo and Citigroup are among the companies set to report later this week.

Overall, S&P 500 second-quarter earnings are expected to rise 6.2 percent year over year, according to S&P Capital IQ. But the key for investors will be the companies’ guidance, The Earnings Scout’s Raich said.

“What’s (likely) going to happen is, for the 25th consecutive quarter, companies will lower their estimates,” he said. “That’s not going to be the bearish news; that will be by how much.”

Source: CNBC