U.S. stocks drifted lower Tuesday a day after major indexes put in their best daily gains in months as global bond yields halted their rapid and unsettling rise.
How are stock benchmarks performing?
- The Dow Jones Industrial Average DJIA dropped 121.93 points, or 0.4%, to 31,413.58.
- The S&P 500 SPX was off 22.20 points, or 0.6%, at 3,879.62.
- The Nasdaq Composite COMP dropped 134.37 points, or 1%, to 13,454.45.
On Monday, the Dow booked its best daily gain since Nov. 9, the Nasdaq Composite Index registered its best day since Nov. 4, while the S&P 500 finished the session with its best daily gain since June 5.
What’s driving the market?
Equity markets were under pressure a day after upbeat reports on the strength of the economy and a slight pullback in sovereign bond yields provided some support for risky assets as the outlook for the COVID-19 pandemic improves.
Economically sensitive, cyclical sectors like energy and financials continue to outperform the broader market amid optimism about the coronavirus vaccine rollout.
Last week’s rise in bond yields reflected expectations that the distribution of vaccines from the likes of Johnson & Johnson JNJ and other drugmakers, as well as a likely imminent infusion of fresh government spending, will drive up inflation and bond yields, as well as economic growth, in the second half of 2021.
“Our sector recommendations are largely positioned for higher interest rates, with a preference for financials, energy, industrials, consumer discretionary, and healthcare,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note.
“Where higher interest rates could pose more of a challenge is in defensive sectors but also growth stocks that are often thought of as long-duration assets given their secular growth dynamics,” she said.
Investors are hoping to garner more guidance from Federal Reserve speakers, with Fed Gov. Lael Brainard slated to speak at 1 p.m. Eastern and San Francisco Fed President Mary Daly is set to talk at 2 p.m.
Investors will be focused on comments from Brainard, who last week “almost played down market concerns about the sharp moves higher in long term yields,” said Michael Hewson, chief market analyst at CMC Markets, in a note. “Given recent volatility, markets will be looking for a much stronger pushback lest the U.S. central bank loses control of market expectations.”
Meanwhile, concerns about bubbles and overvalued parts of the market were a source of concern for Chinese regulators. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and Party secretary of the central bank warned at a briefing in Beijing that stock values were disconnected with economic fundamentals in the U.S. and Europe, reported Bloomberg News and Reuters.
Investors were also focused on developments on the vaccine front. President Joe Biden will announce later Tuesday that Merck & Co. Inc. MRK will help make Johnson & Johnson’s JNJ one-shot COVID-19 vaccine in an unusual agreement between two competitors that could lead to a significant boost in supply, the Washington Post reported Tuesday.
Looking ahead, markets may focus on Biden’s picks to lead the Securities and Exchange Commission, Gary Gensler, and the Consumer Financial Protection Bureau, Rohit Chopra, who will both participate in confirmation hearings before the Senate Banking, Housing and Urban Affairs Committee.
Which stocks are in focus?
- Shares of Target Corp. TGT fell 0.6% after the discount retail giant reported fiscal fourth-quarter profit and sales that rose above expectations, boosted by growth in traffic and average ticket and as digital sales more than doubled.
- Kohl’s Corp. KSS shares rose 0.6% after the retailer reported fourth-quarter earnings and sales that topped Wall Street forecasts.
- Shares of Twitter Inc. TWTR fell 1.3% after the social media company announced the pricing of its $1.25 billion convertible debt offering.
- Hertz Global Holdings Inc. HTZGQ on Tuesday filed a plan of reorganization with the U.S. Bankruptcy Court for the District of Delaware and said it expects to emerge from chapter 11 bankruptcy by early to midsummer.
- AutoZone Inc. shares AZO rose 1.3%, after the car parts maker’s second-quarter earnings blew past estimates.
- Shares of Lumber Liquidators Holdings Inc. LL fell 1.3%, after the hardwood-flooring retailer reported fourth-quarter profit and sales that beat expectations, while not providing financial guidance given uncertainties resulting from the COVID-19 pandemic.
- Zoom Video Communications Inc. ZM rose 2% after the video communications company reported fourth-quarter net income of $260.4 million, or 87 cents a share, compared with net income of $15.3 million in the year-ago quarter and revenue hurtled 369% higher to $882.5 million from $188.3 million a year ago.
What are other markets doing?
- Bond yields pulled back further. The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 3.25 basis points to 1.419%. Yields and bond prices move in opposite directions.
- Oil futures edged higher as traders await this week’s meeting of OPEC+ members, with the U.S. benchmark CL up 0.5% at $60.94 a barrel. Gold futures GC00 edged higher in a bid to snap a five-day losing streak, rising 0.1% to $1,724.60 an ounce.
- Equities rose in Europe, with the pan-European Stoxx 600 index XX:SXXP up 0.5% and London’s FTSE 100 UK:UKX was up 0.8%.
- Stocks advanced in Asia. The Shanghai Composite CN:SHCOMP and Hong Kong’s Hang Seng Index HK:HSI each rose 1.2%, while Japan’s Nikkei 225 JP:NIK rose 0.9%.