By Joy Wiltermuth and Mark DeCambre
The S&P 500 index and Dow Jones Industrial Average lost ground Wednesday after back-to-back winning sessions, but the Nasdaq Composite climbed to its 16th record close in 2021, as investors focused on inflation and last week’s more hawkish policy update from the Federal Reserve.
The blue-chip Dow briefly flipped positive in afternoon trade, but ultimately closed lower with modest headwinds from declines in UnitedHealth Group Inc. /zigman2/quotes/210453738/composite UNH -0.43% and 3M Co. /zigman2/quotes/205029460/composite MMM -1.45% .
How did major benchmarks end?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.54% tumbled 71.34 points, or 0.2%, heading into the bell to end at 33,874.24.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.48% shed 4.60 points, or 0.1%, to finish at 4,241.84, not far from last week’s record closing high at 4,255.15 and its all-time intraday peak at 4,257.16.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.24% climbed 18.46 points, or 0.1%, closing at a record 14,271.73, after establishing a record intraday peak at 14,317.66 in Wednesday action.
On Tuesday , stocks pushed higher, with the Nasdaq Composite closing at a record, while the Dow added 68.61 points, or 0.2%, and the S&P 500 rose 0.5%, leaving it 0.2% away from its all-time high finish of 4,255.15 on June 14.
What drove the market?
Stocks struggled for direction Wednesday, a day after Federal Reserve Chairman Jerome Powell testified before a House committee , reassuring investors that the central bank expects rising inflationary pressures to prove transitory.
Powell’s tone has been echoed by other Fed officials, though both Atlanta Fed president Raphael Bostic and Fed Governor Michelle Bowman agreed that with economic growth surging to an estimated 7% this year and inflation well above the Fed’s 2% target, inflation may take longer than anticipated to fade, according to a Reuters report .
“I think stocks are in a holding pattern after a very good Monday and Tuesday,” Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, told MarketWatch.
While investors continue to weigh “the power of the reopening, Fed comments and the underlying earnings strength,” Mortimer expects it to be a couple of choppy months for stocks over the summer and into the fall, as investors search for more clarity on the trajectory of inflation.
“We all know that inflation is going to be hot this summer. It’s no secret. The question is how hot will it be next summer.”
Investors have begun to examine how long higher prices might last. “For the next nine to 18 months, we expect inflation to be ‘persistent, if transitory,’ with higher prints lasting longer than the few months many expect, but eventually ebbing back,” Michael Kelly, global head of multi-asset at PineBridge Investments, wrote Wednesday, in a midyear outlook .
For equities, Kelly expects no “major correction” in the eventual “tapering phase” of the Fed’s asset purchases, but “rather a more benign situation in which equities flatline or move sideways until bottlenecks eventually clear, making asset selection all the more critical.”
Powell’s more dovish comments Tuesday followed last week’s update by the interest rate-setting Federal Open Market Committee, where policy makers said that they expect to begin raising interest rates more quickly than investors had anticipated, while discussing when it would be appropriate to consider scaling back monthly bond purchases.
“Investors deciphered all this as implying the Fed won’t slam on the brakes too hard and will hold the market’s hand throughout the normalization process, which helped propel the rate-sensitive Nasdaq to new record highs as tech and growth stocks came back in vogue,” said Marios Hadjikyriacos, investment analyst at XM, in a note.
Technology and growth-oriented stocks benefited from mostly muted moves in yields for government debt, which were holding steady after Powell’s comments.