While the Dow managed to end up, other U.S. stock indexes finished lower Tuesday, with the Nasdaq suffering its worst one day fall since March, as investors sifted through comments from U.S. Treasury Secretary Janet Yellen who said interest rates could rise a bit if the economy overheated.
How are stock benchmarks performing?
- The Dow Jones Industrial Average rose 19.80 points, or 0.1%, to 34,133.03, bouncing close to 370 points from its intraday low of 33,765.68.
- The S&P 500 was off 28 points, or 0.7%, at 4,164.66.
- The Nasdaq Composite dropped 261.61 points, or 1.9%, to 13,633.50, for its largest one day decline since Wednesday, March 24, 2021.
On Monday, the Dow advanced 238.38 points, or 0.7%, ending at 34,113.23, its third-highest close in history; the S&P 500 added 11.49 points, or 0.3%, to close at 4,192.66, its second-highest finish ever; while the Nasdaq Composite fell 67.56 points, or 0.5%, finishing at 13,895.12, as it posted back-to-back declines.
What’s driving the market?
Investors honed in on comments by Yellen, in an interview with the Atlantic magazine that was recorded Monday and aired Tuesday, in which she said interest rates may have to rise a bit to prevent the economy from overheating, but those remarks were made in the larger context of a speech where she also said inflation would not be an issue.
Still, Yellen has drawn attention to market fears around a tapering of the central bank’s asset purchases, a necessary condition before the central bank starts raising rates. Dallas Fed President Robert Kaplan reiterated the need to discuss cutting down its bond-buying in an interview with MarketWatch.
“It’s surprising to me she started saying these comments. You pair that together with Dallas Fed President Kaplan saying it’s time to start talking about tapering. You have the sentiment right now building in the market for the Fed to do something,” said David Wagner, portfolio manager at Aptus Capital Advisors, in an interview.
Tech-related shares led the move to the downside on Tuesday, with heavyweights Tesla Inc. Google parent Alphabet Inc. and Apple Inc. shares finishing lower. Seven out of the 11 major S&P 500 sectors fell, with technology, communication services and consumer discretionary falling by the most.
Investors were weighing the strength of corporate earnings and the economic resurgence from the COVID pandemic against worries about inflation and concerns that prices for equities don’t have much further room to run higher given current valuations.
Fiscal stimulus, vaccinations and the Federal Reserve’s accommodative stance bolstered a rebound in U.S. economic growth and lifted U.S. stock indexes to record highs this year, but stocks that benefited most from the “work from home” trend during the pandemic have begun to lose momentum even though earnings in the first quarter have been mostly better-than-expected. Profits at S&P 500 index companies are expected to have risen 47.7% in the quarter, compared with forecasts of a 24% growth at the start of April, according to IBES data from Refinitiv.
“The reopening trade is already priced in. I don’t think we can go much higher from here,” said Jeff Klingelhofer, co-head of investments and a portfolio manager at Thornburg Investment Management.
MarketWatch’s Mark Hulbert notes that by one measure stock valuations are higher than 98% of monthly readings since 1881, and more than double the 140-year average, suggesting an extremely overvalued market.
On Monday, a closely watched manufacturing report from the Institute for Supply Management for the U.S. disappointed, falling to 60.7% in April from a 38-year high of 64.7% in the prior month. Economists surveyed by Dow Jones and The Wall Street Journal had forecast the ISM index to edge up to 65%.
In economic data Tuesday, the U.S. trade deficit rose 5.6% in March to a record $74.4 billion, reflecting a robust appetite for consumer goods as the economy gains speed. Data also showed U.S. factory orders rose 1.1% in March.
On the public-health front, the U.S. Food and Drug Administration is expected to authorize Pfizer’s COVID-19 vaccine for ages 12 to 15 by next week, according to the Associated Press, citing a federal official and a person familiar with the process, setting up shots for many before the beginning of the next school year. Meanwhile, India is second to the U.S. by cases at 20.3 million and third by fatalities at 222,408.
Which companies are in focus?
- Shares of CVS Health Corp. rose 4.3%, after the drugstore chain and healthcare services company reported first-quarter profit and sales that rose above expectations, with growth in all segments, and raised its full-year outlook.
- Shares of Pfizer Inc. closed up 0.4%, after the drug giant beat earnings expectations and raised its full-year outlook, as revenue expectations for its COVID-19 vaccine jumped 73%.
- Shares of DuPont Inc. gained 1.6% after the specialty materials, chemicals and agricultural products company reported first-quarter profit and sales that beat expectations, with all of its business segments showing growth, and raised its full-year outlook.
- Arconic Inc. shares rose 19.2%, after the company posted better-than-expected first-quarter earnings and raised guidance, citing higher aluminum prices and strong orders from the aerospace sector.
- Shares of ConocoPhillips was up 0.3%, after the oil-and-gas company reported first-quarter earnings that beat expectations, and announced the resumption of share repurchases and plans to start selling off its Cenovus Energy Inc. CVE stake.
How are other assets faring?
- In Europe, the Stoxx Europe 600 SXXP was off 1.5%, while London’s FTSE 100 shed 0.7%.
- The 10-year Treasury note yield TMUBMUSD10Y fell 1.5 basis points to 1.591%.
- The greenback was stronger, trading up 0.4% based on the ICE U.S. Dollar Index DXY.
- Gold futures GC00 fell $15.80, or 0.9%, to settle at $1,776 an ounce on Comex. U.S. crude futures CL.1 rose $1.20, or 1.9%, to settle at $65.69 a barrel on the New York Mercantile Exchange, booking a second straight gain.
- In Asian trade, Hong Kong’s Hang Seng Index HSI rose 0.7%. Bourses in Shanghai and Tokyo were closed.