S&P 500 on Track for Quarterly Gains Despite Recent Selloff

Investors have had to navigate an uptick in Delta variant Covid-19 cases this quarter, alongside concerns that higher inflation—driven by surging energy prices—would stick around longer than expected. Also dogging markets were fears of contagion from debt-laden property developer China Evergrande Group. 

Stocks have endured a particularly rocky stretch since the Federal Reserve signaled last week that it would start to reduce its bond-buying as soon as November—and possibly begin to raise interest rates next year.

“We’ve entered a slightly more difficult, more wonky stage of the recovery, and there’s a number of headwinds emerging against the upward march we’ve seen since last year,” said Sebastian Mackay, a multiasset fund manager at Invesco. 

The expectation for interest rate increases and higher inflation—also reflected in rising oil and commodities prices—has led some investors to sell government bonds, whose yields have been near historically low levels. The selloff cooled Thursday, with the yield on the benchmark 10-year Treasury note ticking down to 1.529% from 1.540% Wednesday. Yields and prices move inversely.

“People realize that the only asset with real expected returns are equities. The market kind of seems to grind higher on this there-is-no-alternative environment,” said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. “That won’t last if central banks make it clear they are raising rates regardless of the growth backdrop.” 

Investors have also sold off shares of large technology companies, which tend to do better in low-yielding environments because investors have more incentive to buy shares and await higher profits in the future. The technology heavy Nasdaq-100 has fallen 5.3% this month, though contracts tied to the index are up 0.5% ahead of Thursday’s market open. 

In premarket trading, shares of Virgin Galactic Holdings jumped 9% after the top U.S. aviation safety regulator said it had cleared the company to operate space flights again.

Futures for Brent crude, the benchmark in international energy markets, crept 0.1% lower to $78.00 a barrel.

Overseas, the pan-continental Stoxx Europe 600 edged up 0.2%, led higher by the basic resources and media sectors, while travel and leisure companies largely fell.

Shares of Sweden-based cloud computing company Sinch AB added 5.6% after it said it had acquired email-delivery platform Pathwire. Semiconductor equipment maker ASML Holding said it expected to see higher revenue by 2025 due to strong demand for electronics; shares rose 1.3% in Amsterdam trading. 

European natural-gas prices jumped again on concerns that the continent doesn’t have adequate stores heading into winter, when demand picks up. Futures for gas to be delivered in the Netherlands—the regional benchmark—rose 9.6% to 95.60 euros, equivalent to about $110.87, a megawatt-hour. Prices have climbed more than sevenfold over the past year.

Indexes in Asia closed after a mixed performance Thursday. China’s Shanghai Composite added 0.9%, and South Korea’s Kospi edged up 0.3%. Hong Kong’s Hang Seng declined 0.4%. Concerns over Chinese growth and the resilience of its property sector have also weighed on global sentiment this quarter. 

Investors will get fresh figures on the number of Americans who applied for first-time unemployment benefits in the week ended Sept. 25 at 8:30 a.m. ET. Economists surveyed by The Wall Street Journal expect that jobless claims eased to 335,000, from 351,000 the week prior. 

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com