By Geoffrey Smith
Investing.com -- U.S. stock markets opened Monday sharply lower amid fears that the massive stimulus package making its way through Congress will lead to higher inflation, leading to higher borrowing costs and higher input costs for companies.
By 9:35 AM ET (1435 GMT), the Dow Jones Industrial Average was down 166 points, or 0.5%, at 31,428 points. The S&P 500 was down 0.7% and the Nasdaq Composite was down 1.3%.
The moves were triggered by a sharp move higher in Treasury bond yields, which hit their highest level in a year over the weekend. Yields on 10-year notes came off their overnight high of 1.40% to trade at 1.35% by 9:35 AM ET, but are still up some 25 basis points over the last three weeks. Many tech companies, whose value lies mainly in their projected income streams far into the future, are particularly sensitive to interest rate movements because their future cash flows have to be offset by a higher discount rate.
Bonds are being weighed upon by the prospect of a sharp increase in Treasury issuance to fund the $1.9 trillion stimulus package crafted by the administration of President Joe Biden. The package is likely to be voted on by the House of Representatives as early as Friday, making a vote in the Senate possible next week.
Risk appetite has been bolstered by upward revisions to U.S. growth forecasts this year as a result of the mix of loose fiscal and monetary policy. Dallas Federal Reserve President Robert Kaplan said earlier he saw upside risks to a base case forecast of 5% growth this year. Kaplan told a conference that Americans will “gradually” increase their engagement with the economy in the first half, accelerating it in the second half as more and more of the population is inoculated against Covid-19.
Among notable gainers was the Special Purpose Acquisition Company Churchill Capital IV, which rose 12.6% on reports that it is soon to merge with electric vehicle maker Lucid Motors. The deal has been rumored for some weeks now, during which time investors have piled into Churchill in the hope of getting relatively cheap exposure fo the luxury carmaker. There are still no details as to how the respective firms would be valued in any such deal. Tesla (NASDAQ:TSLA) stock, for which Lucid would provide competition, fell 3.1%, while Nio (NYSE:NIO) ADRs fell by a similar amount.
Elsewhere, GameStop (NYSE:GME) stock rose 11.3% and American Airlines (NASDAQ:AAL) stock rose 8.3% in an echo of the violent short squeeze that happened earlier in the month. United Airlines (NASDAQ:UAL) stock also rose 4.5%.
Among the biggest losers were ADRs in Brazilian oil and gas company PetroBras (NYSE:PBR), which fell over 20% after President Jair Bolsonaro fired its chief executive in a dispute over domestic diesel prices. Reuters reported that the whole of the company's management board is considering stepping down en masse in protest at what would be a big swing back towards state intervention in the economy, with worrying echoes of how similar policies destroyed the economy of neighboring Venezuela. Brazilian iron ore giant Vale (NYSE:VALE) also suffered by association, losing over 5% despite a fresh surge in iron ore prices. Base metals from copper to zince have all hit multi-year highs over the weekend, again lifting the prices of mining companies such as Freeport-McMoran (NYSE:FCX).
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