U.S. stocks finished mostly higher on Tuesday as the blue-chip Dow shed early gains ahead of a policy update by the Federal Reserve. The Nasdaq led the broader market rally as technology shares continued to make up lost ground from last week’s selloff.
How are equity benchmarks performing?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -3.43% rose 2.27 points to finish at 27,995.60, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -3.53% gained 17.66 points, or 0.5%, to trade at 3,401.20, marking its third straight increase. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -3.73% finished up 133.67 points, or 1.2%, at 11,190.32, logging back-to-back gains.
On Monday, the Dow rose 327.69 points, or 1.2%, to finish at 27,993.33, after briefly trading above the 28,000 threshold. The S&P 500 added 42.57 points, or 1.3%, closing at 3,383.54. The Nasdaq Composite climbed 203.11 points, or 1.7%, to end at 11,056.65, rebounding from a rout that last week saw the tech-heavy index enter correction territory by falling more than 10% from a record high.
What’s driving the market?
A pickup in merger-and-acquisition activity in helped tech shares regain their footing after last week’s selloff, perhaps prompting investors to reason that valuations weren’t so stretched if companies like chip maker Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -5.75% were poised to make acquisitions, said Elliott Savage, portfolio manager for the YCG Enhanced Fund, in an interview. Nvidia on Sunday said it reached an agreement to buy Arm Holdings from SoftBank for $40 billion.
Caution remains in order though, he said. A sharp rally by stocks off the March pandemic lows has been fueled by a combination of improving earnings for certain tech-oriented companies able to grow market share as well as by increased speculative interest.
While investors largely gave companies a pass on second-quarter earnings, third quarter results will likely face tougher scrutiny, and political uncertainty surrounding the November presidential election could add to the potential for increased volatility, Savage said.
Investors were heartened Monday by positive news on a vaccine against COVID-19 from AstraZeneca /zigman2/quotes/200304487/composite AZN -2.86% and BioNTech /zigman2/quotes/214419716/composite BNTX -7.64% and were watching Tuesday for a product launch by Apple Inc. /zigman2/quotes/202934861/composite AAPL -4.63% as well as several IPOs.
“Each positive vaccine headline brings more clarity on the timing and potential success of vaccine delivery, illuminating the light at the end of the tunnel for this pandemic and the economic devastation it has wrought across many industries,” said Michael Reynolds, an investment strategy officer at Glenmede Trust Co., in e-mailed comments.
The Federal Reserve started its policy-setting meeting on Tuesday, which will be followed by a news conference and policy statement on Wednesday, while central-bank decisions from the Bank of England and the Bank of Japan are due on Thursday.
The meeting of the policy-setting Federal Open Market Committee also would be the first since the central bank introduced its new policy framework of average-inflation targeting.
In his post-meeting news conference, Federal Reserve Chairman Jerome Powell is likely to be peppered by questions about how the Fed intends to measure maximum employment and average inflation, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities.
While the committee “will want to keep policy as flexible as possible by keeping these aspects of policy vague, the press will try to nail Chairman Powell down to specifics so that the deviations from target can be quantified,” he said.
Investors are also watching for Snowflake Inc., a cloud-computing company, which is set to list on the New York Stock Exchange this week and has the backing of Warren Buffett’s Berkshire Hathaway /zigman2/quotes/208872451/composite BRK.A -2.83% /zigman2/quotes/200060694/composite BRK.B -2.99% and Salesforce.com /zigman2/quotes/200515854/composite CRM -4.74% . On Monday, Snowflake raised the proposed price range for its initial public offering to $100 to $110, up from a prior $75 to $85. The company is planning to offer 28 million shares to raise up to $3.08 billion.