The Nasdaq Composite rose on Monday, outperforming the other major stock indexes, as technology stocks bounced back from a recent sell-off in the first trading day of the fourth quarter. The S&P 500 ended slightly higher, while the Dow Jones Industrial Average slipped amid rising oil prices and Treasury yields.
Congress averts government shutdown
Investors breathed a sigh of relief after Congress passed a stopgap funding bill on Saturday, avoiding a government shutdown that could have disrupted the economy and the markets. The bill, which President Joe Biden signed into law, extends the government’s spending authority until December 3, giving lawmakers more time to negotiate over the debt ceiling and the infrastructure and social spending packages.
However, the relief could be short-lived, as the U.S. Treasury Department has warned that it could run out of cash by October 18 unless Congress raises the debt limit. A default on the nation’s debt could trigger a financial crisis and a recession, according to Treasury Secretary Janet Yellen.
Tech stocks lead Nasdaq rally
The tech-heavy Nasdaq Composite gained nearly 0.7%, as some of the most popular technology stocks recovered from their recent losses. Goldman Sachs analysts said in a note that the sector’s valuations were historically cheap, and that they expected tech stocks to outperform in the fourth quarter.
Among the notable gainers, Apple (AAPL) rose 1.4%, Microsoft (MSFT) added 1.2%, Amazon (AMZN) advanced 1.1%, and Facebook (FB) climbed 0.9%. Tesla (TSLA) also reversed an early decline, closing 0.4% higher, after reporting lower-than-expected vehicle deliveries for the third quarter. The electric car maker faced supply chain challenges and chip shortages that affected its production.
Manufacturing activity contracts in September
The U.S. manufacturing sector contracted in September for the first time since August 2020, according to the latest data from the Institute for Supply Management (ISM). The ISM Manufacturing Index fell to 49 from 50.1 in August, missing the consensus estimate of 50.5. A reading below 50 indicates a contraction in the sector.
The report showed that the manufacturing activity was hampered by supply chain disruptions, labor shortages, rising input costs, and lower customer demand. The new orders, production, and employment subindexes all declined, while the prices paid subindex rose to a record high of 80.4, indicating inflationary pressures.
Oil prices and Treasury yields surge
Oil prices and Treasury yields continued to rise on Monday, adding to the market’s volatility and uncertainty. The price of West Texas Intermediate crude, the U.S. benchmark, surged 2.3% to $75.45 per barrel, the highest level since October 2018. The price of Brent crude, the international benchmark, jumped 2.6% to $78.97 per barrel, the highest level since November 2018.
The rise in oil prices was driven by strong global demand, tight supply, and geopolitical tensions. OPEC and its allies decided to stick to their plan of gradually increasing output by 400,000 barrels per day in October, despite calls from the U.S. and other major consumers to pump more oil to ease the energy crunch.
Meanwhile, the yield on the 10-year Treasury note rose to 4.69%, the highest level since May 2008. The yield on the 30-year Treasury bond climbed to 5.12%, the highest level since June 2008. The rise in yields was fueled by expectations of higher inflation, stronger economic growth, and a sooner-than-expected tapering of the Federal Reserve’s bond-buying program.