Stocks stumbled in late trade Tuesday, giving up early gains to end lower as a selloff in tech shares continued and investors assessed the outlook for the economy amid a slowing in the number of new coronavirus cases and a lack of progress toward additional coronavirus aid from Washington.
What did major indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.38% finished with a loss of 104.53 points or 0.4%, at 27,686.91. The blue-chip gauge was up more than 300 points at its session high. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.81% ended 26.78 points lower, a loss of 0.8%, at 3,333.69. The Dow and the S&P 500 both snapped seven-day winning streaks. The tech-heavy Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.53% dropped 185.53 points, or 1.7%, closing at 10,782.82.
The Russell 2000 index /zigman2/quotes/210598147/delayed RUT +1.32% of small-capitalization companies gave up 9.57 points, or 0.6%, ending at 1,575.10.
The Dow /zigman2/quotes/210598065/realtime DJIA +0.38% on Monday rose 357.96 points, or 1.3%, to finish at 27,791.44, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.81% edged up 9.19 points, or 0.3%, to close at 3,360.47, just 0.8% away from its Feb. 19 record close of 3,386.15. The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.53% , meanwhile, dropped 42.63 points, or 0.4%, ending at 10,968.36.
What drove the market?
Bruce Bittles, chief investment strategist at Baird, said several factors likely played a role in the late-day sell off, noting that the Dow and S&P 500, after seven days in a row of gains, were technically “overbought.” In addition, enthusiasm around Russia’s COVID-19 vaccine efforts faded throughout the day, he said, but said the most important factor was a sharp rise in Treasury yields that “surprised investors and caught some off guard.”
A further sharp rise would likely be a big negative for stocks, he said.
Some analysts have been looking for a potentially sharp near-term rotation out of popular growth oriented stocks toward more cyclical shares once there were signs the worst of the pandemic was past and the economy could head toward a fuller reopening.
“In our central scenario, we expect no renewed nationwide lockdowns. Moderate restrictions on activity should be sufficient to keep outbreaks manageable, with a vaccine widely available from 2Q 2021,” said Mark Haefele, chief investment officer for global wealth management at UBS.
Combined with expansionary monetary policy and a moderate boost to fiscal stimulus, that would allow for a rebound in economic activity to pre-pandemic levels by 2022, he said, in a note. With yields anchored near record lows, the equity risk premium can normalize to pre-pandemic levels, allowing the S&P 500 to trade at 3,500 by the end of June 2021, Haefele said.
The Dow’s biggest gainers were JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -0.43% and American Express Co. /zigman2/quotes/203805826/composite AXP +3.77% , while Apple Inc. /zigman2/quotes/202934861/composite AAPL +0.54% was its biggest drag.
“You’re starting to see a big catch up trade,” said Sam Hendel, president and co-portfolio manager at Levin Easterly Capital, in an interview, about the recent rally in equities away from the handful of technology companies that have led stock benchmarks higher, as the pandemic forced many white collar jobs to be done from home.
“Tech has really shined,” he said, but added that several catalysts, including optimism around an earnings recovery and the development and distribution of an effective vaccine, would benefit downtrodden stocks over the long run.
Meanwhile, the number of new COVID-19 cases in the U.S. has fallen 18% over the past 14 days, according to a New York Times tracker , while deaths have fallen by 6%.