U.S. Stocks: What to Watch the Fourth Week of September

U.S. stocks reopened Monday with the 10-year U.S. Treasury yield at 5 percent, the Dow off more than 1.5 percent from last week and a missile aimed at Riyadh that Saudi air defenses destroyed adding oil-price risk. Market participants face a week of Federal Reserve remarks, a monthly growth survey and a U.S.-China summit in Washington.

The bond market is the immediate focus. A 10-year Treasury yielding 5 percent offers a near–risk-free return that raises the hurdle for corporate valuations and investor returns. Ed Yardeni, founder of Yardeni Research, cut his year-end S&P 500 target to 7,900 from 8,400 and warned the yield “may be on the verge of breaking out above 5 percent,” citing the bond market, the war in Iran and the November midterm elections.

Market breadth was thin in the latest session. Technology and industrials were among the few sectors to gain while most stocks fell. Higher yields reduce the present value of profits expected in the future, a factor that weighs more heavily on growth-oriented technology companies.

Oil-price risk rose after Yemen’s Houthi rebels fired a missile at Riyadh on Saturday that Saudi air defenses destroyed, a coalition spokesman said. Brent crude closed near $104 a barrel on Friday, up more than 13 percent over the past month. Higher energy prices lift profits for oil producers and increase fuel costs for airlines, retailers and other companies; higher fuel costs also contribute to consumer inflation.

Federal Reserve policy is a central uncertainty. The Fed raised rates last week, and futures traders increased the probability of another hike in October. Kevin Warsh, chair of the U.S. Federal Reserve, stated, “The plain fact is that inflation is too high and has been for too long.”

On Wednesday, S&P Global will publish its flash purchasing managers survey, the first read on whether higher energy costs are slowing activity. Weak growth combined with persistent inflation has been cited by market participants and policymakers as a key risk.

President Donald Trump will host Chinese President Xi Jinping on Thursday. Agenda items include tariffs, rare earths and guidelines for artificial intelligence. The current trade truce is due to expire on Nov. 10.

Corporate results add another layer of data this week. KB Home reports on Tuesday, with mortgage rates closely tied to the 10-year yield. Costco reports on Thursday, and some analysts expect core earnings could miss estimates.

Policymaker comments, the flash growth survey and the U.S.-China summit are scheduled events this week that market participants are monitoring for their potential to move Treasury yields, oil prices and stock performance.