The Rally Plays Peek-A-Boo

The conflicting dynamics of Friday's upside surge and Thursday's downward reversal played out again Monday, but with far less drama. In sum, Monday was a relatively sleepy summer session pockmarked by some intraday swings.

After trading as high as 9303.93 and as low as 9234.50, the Dow Jones Industrial Average closed down 0.2% to 9266.51. The S&P 500 ended off 0.2% to 996.52 vs. its intraday high of 1000.68 and low of 993.59, while the Nasdaq Composite rose 0.3% to 1735.40 after trading in a range between 1740.40 and 1726.20.

Revelations of fines levied against J.P. Morgan JPM and Citigroup C had little effect on the financial giants, much less broader stock proxies. J.P. Morgan rose 0.1%, while Citigroup gained 0.2%.

Similarly, earnings from American Express AXP, Northrop Grumman NOC and Kellogg's K had mainly company-specific implications.

As has often been the case of late, action in stocks was outshined by movements in Treasuries, where prices swooned amid concerns about pending new supply. The Treasury Department said Monday it expects to borrow $104 billion in the current quarter vs. prior estimates of $76 billion, and a record $126 billion in the final three months of the calendar year.

Ahead of a slew of economic data later this week, the Treasury's announcement helped push the price of the benchmark 10-year note down 31/32 to 94 20/32, its yield rising to 4.30%.

Optimists have suggested the recent rise in bond yields indicates the fixed-income market's bet on faster economic growth. That would augur positively for shares, but the Treasury market may not be forecasting future economic growth as much as responding to rising budget deficits and the increased government borrowing they will spur.

"Chronic budget deficits will ultimately lead to higher interest rates, less investment, lower productivity growth and a slower growth rate in the nation's standard of living," William Dudley, director of U.S. economic research at Goldman Sachs, opined last week. "In this regard, the problem is not the near-term deficits but the fact that large budget deficits are likely to become a chronic feature of the economic landscape."

It's probably a stretch to attribute Monday's stock action to concerns about such macro issues. But the latest selloff in Treasuries may have hampered the ability of equities to build on Friday's rally. In any event, the session did nothing to end the stock market's recent range-bound activity.