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Tech and energy shares lead stocks higher, yield curve remains inverted

U.S. stocks rose and Treasury yields were mostly higher Tuesday afternoon even as a closely watched portion of the curve remained inverted.

The S&P 500 (^GSPC) rose 0.72%, or 20.1 points, as of market close, with tech and energy stocks leading advances as domestic crude oil prices (CL=F) settled higher by 1.9% to $59.94 per barrel. The Dow (^DJI) rose 0.55%, or 140.9 points, while the Nasdaq (^IXIC) rose 0.71%, or 53.98 points.

Weak results for new-homebuilding in the U.S. in February and domestic consumer confidence in March did little to slow stocks’ advances, with equities continuing to extend gains from early trading.

Investors continue to eye Treasurys after the yields on the 10-year note and 3-year bill inverted Friday for the first time since 2007. Many view inversions of the yield curve as a recessionary harbinger, as investors signal a lack of faith in near-term market conditions by demanding a larger yield on shorter-term investments than on longer-term ones.

“An inverted curve is where we are and that has implications for stocks, particularly after the rally this year and in light of full valuations,” Mike Wilson of Morgan Stanley wrote in a note Monday. “We see lower rates as good only to a point because, eventually, the fall in rates is not just about the Fed giving equity investors a ‘green light’ to risk up, but it is also about growth.”

Treasury yields, which move inversely to prices, fell across the curve Tuesday afternoon, with the benchmark 10-year yield up less than 1 basis point to 2.423% as of 4:02 p.m. ET. However, it held below the 3-month yield, which was slightly lower at 2.468%.

In equity markets, stock buybacks have continued to balloon, with share repurchases hitting a record a fourth consecutive quarterly record of $223 billion in the last three months of 2018, according to a preliminary report published Monday from S&P Dow Jones Indices. In the full-year 2018, buybacks set an annual record of $806.5 billion, up more than 50% from 2017. Apple (AAPL), Oracle (ORCL) and Wells Fargo (WFC) led for highest total buybacks in the fourth-quarter.

“Companies continued to spend more of their tax savings on these share repurchases as they boosted earnings through significantly reduced share counts,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said in a statement. “Adding to the share reduction, and therefore the EPS impact, was Q4's stock price decline, which permitted companies to buy even more shares for their dollars and reduce share count more efficiently."

Overseas, the British pound rose against the dollar (GBPUSD=X) to more than $1.32 after the UK Parliament on Monday voted on Monday to take control of Brexit from prime minister Theresa May. This means the House of Commons is open for votes on alternatives to May’s proposed exit process, which could include a potential second referendum, revised trade agreement with the EU, no-deal exit or complete cancellation of Brexit.

The vote was the latest blow to May, who last week asked the EU for an extension to the UK’s exit date after her Brexit deal was voted down twice in Parliament.

ECONOMY

New-home building dropped the most in eight months in February, with privately-owned housing starts down 8.7% from January’s upwardly revised estimate to a seasonally adjusted rate of 1.162 million. Consensus economists anticipated February’s housing starts to come in at a 1.210 million seasonally adjusted annual rate. January’s housing starts reading was upwardly revised to 1.273 million, from 1.230 million previously, according to the Census Bureau.

Single-family housing starts led the decline in February, with starts in the category down 17% to 805,000 from January’s 970,000. On a year-over-year basis, single-family starts have fallen in four of the past five months.

“The weakness in this month’s data may be a sign that builders continue to face problems with labor shortages and lot availability, even as we expect demand to pick up going into the spring buying season, fueled by lower mortgage rates,” Joel Kan, Mortgage Bankers Association associate vice president of economic and industry forecasting, said in an email.

Housing permits, which signal future home-building, also fell below expectations, coming in at 1.296 million for February from a downwardly revised 1.317 million in January. Consensus economists expected building permits to drop less steeply to 1.305 million for the month.

New home-building dropped the most in 8 months in February. (AP Photo/Keith Srakocic)

Meanwhile, home prices grew at the slowest pace since 2015, according to Standard & Poor’s S&P CoreLogic Case-Shiller national home price index for January. The gauge posted a 4.3% annual increase in January, down from 4.6% for the previous month. The 20-City Composite, which measures home value in 20 major metro areas, grew 3.6% year-over-year, below expectations of 3.8% and the previous month’s downwardly revised reading of 4.1%.

The Conference Board’s Consumer Confidence Index unexpectedly fell in March after rising in February. The headline reading came in at 124.1 for the month, down from 131.4 in February and below consensus expectations for 132.5, according to Bloomberg-compiled estimates. Readings for business conditions and the labor market also declined sharply in March, according to the Conference Board’s measures.

“We did not expect a sudden correction in March; perhaps the wave of negative media sentiment about the economy before and since the Fed meeting made [a] difference,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Tuesday. “Either way, we doubt this marks the start of a sustained downward trend; a rebound is more likely in April.”

STOCKS

Airbus (AIR.PA, +2.02%) on Monday said it reached a deal with China to sell 300 passenger jets to airlines in the country, including 290 planes from the A320 line and 10 from the A350 line. According to Airbus’s list prices, each A320 sells for $101 million, while the A250 model sells for $280.6 million. Airbus wrote in a statement that it expects China to require about 7,400 new passenger and freighter aircraft over the next two decades, comprising more than 19% of the world’s total demand for 37,400 new aircraft. The announcement comes as competitor Boeing (BA) continues to deal with the grounding of its best-selling 737 Max jetliner.

Apple’s (AAPL, -1.03%) stock ended Tuesday’s session lower after the company on Monday announced a suite of new service offerings including a news service, streaming platforms, credit card and gaming platform. Analysts were mixed on Apple’s services-driven special event, with some suggesting the new platforms could help bolster Apple’s hardware and service ecosystem, while others were skeptical of Apple’s ability to compete in the video streaming and credit card space already dominated by incumbents.

Morning Brief

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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