Stocks Rise, Bonds Fall as Inflation Fears Mount: Markets Wrap

(Bloomberg) — U.S. stocks rose as oil prices pared back earlier gains.

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The S&P 500 rose 0.1% while the Nasdaq 100 added 0.1%, continuing a rebound last week when strong corporate earnings and economic reports where enough to outweigh concerns about an energy shortage and supply-chain disruptions.

Earlier OPEC+ failed to meet output targets and Russia opted against sending more fuel to Europe, putting pressure on global shares. In Europe, consumer and retail shares led a drop on the Stoxx 600. And in Asia, stocks were mixed as China’s economy slowed in the third quarter. Crude oil prices in New York, however, eased back gains in late afternoon trading.

“The issues that caused the pullback have quieted over the past two weeks, which has rightly allowed stocks to bounce,” wrote Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter. “But these issues are not resolved by any stretch of the imagination.”

The yield on the 10-year Treasury note climbed to 1.60% as a global bond selloff gathered pace. U.K. yields surged after the Bank of England warned on the need to respond to price pressures. Meanwhile, rate-hike bets have also picked up in Australia and New Zealand, where inflation accelerated to the fastest pace in 10 years. The dollar was little changed.

“The week ahead should provide investors further insight as to the health of the stateside economy as well as the strength and resilience of S&P 500 corporate earnings,” John Stoltzfus, chief investment strategist at Oppenheimer, wrote to clients. “Last week a glance under the hood of how things are going was provided when five of America’s biggest banks reported results with enough positive surprises among them to counter concerns that had jostled stocks ahead of their reporting.”

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Speakers from the Federal Reserve this week are also expected to try to calm investors about future tightening ahead of plans to begin tapering its asset-purchase program.

“Rising commodity prices — particularly oil prices, which only appear to go in one direction at the moment — are boosting expectations of high inflation becoming more entrenched and a sooner move by the Fed to raise interest rates,” said Fiona Cincotta, senior financial markets analyst at City Index. “This is hurting demand for stocks, particularly tech stocks, which are less attractive as interest rates rise but also as investors are looking ahead to a slew of earnings from these big names.”

Meanwhile, there are fears the central bank will not be nimble enough to respond to a potential miscalculation.

“That’s where we could end up with recessionary risks down the line,” Michael Darda, chief economist and market strategist at MKM Holdings, said. “That’s not going to be a risk for next year in my estimation, but this could prove to be a shorter business cycle.”

For more market analysis, read our MLIV blog.

Events to watch this week:

• Earnings roll…