By Christine Idzelis and William Watts
The Dow Jones Industrial Average ended at a fresh peak Tuesday, scoring back-to-back record closes in the first week of 2022, even as the broader market fell under pressure amid newfound selling in government debt that was driving long-term yields higher and interest-rate-sensitive tech shares lower.
What did major indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.85% rose 214.59 points, or 0.6%, to close at an all-time high of 36,799.65, after it established an intraday record at 36,934.84.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +1.25% slipped 3.02 points, or almost 0.1%, to end at 4,793.54 after touching an intraday all-time high at 4,818.62.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.90% sank 210.08 points, or 1.3%, to finish at 15,622.72, after trading near session lows at 15,512.41.
On Monday , the Dow and the S&P 500 closed at records, while the Nasdaq Composite surged 1.2%, to finish just over 1% away from record territory.
What drove markets?
Stocks kicked off the session with gains, but major benchmarks ended mixed after the consumer discretionary /zigman2/quotes/210600228/delayed XX:SP500.25 +3.50% and tech sectors /zigman2/quotes/210600213/delayed XX:SP500.45 +1.71% came under selling pressure as Treasury yields climbed. Growth-oriented sectors are seen as more sensitive to rising rates.
“This isn’t a calm day where everything is kind of moving together,” said Ryan Detrick, chief market strategist for LPL Financial, in a phone interview Tuesday. “Tech is really taking it on the chin due to the higher yields” he said, whereas financials and banks generally are performing “very, very well.”
The S&P 500’s information technology sector finished 1.1% lower Tuesday, while the index’s financials sector /zigman2/quotes/210599997/delayed XX:SP500EW.40 +1.56% rose 2.6%, according to FactSet.
Investors are focused on the Federal Reserve and the prospect for rate increases that are expected to begin as early as March. The prospect of rising rates, however, is the largest positive driver for the S&P 500, said Colin Stewart, head of Americas at Quant Insight.
Rather than a negative, multiasset signals investors see the chance of rate increases “as the appropriate thing to do and perhaps even the right timing,” Stewart said, in a phone interview. Investors appear confident COVID-19 will fade away over the next six to nine months, while rate rises will help to squelch inflation pressures.
Minneapolis Fed President Neel Kashkari said Tuesday that inflation has risen higher and lasted longer than he expected. Also, in a separate essay released on his regional bank’s website, Kashkari said that at the most-recent December Federal Open Market Committee meeting, he penciled in two rate increases in 2022. The FOMC next meets on Jan. 25-26.
The economy remains “healthy” and rates hikes are a “normal” part of the market cycle, LPL’s Detrick said. “We’re more mid-cycle,” he said, adding that “higher rates make sense this year” along with more volatility.
Meanwhile, a buildup in defensive positioning by investors heading into the Fed’s December meeting, when policy makers agreed to speed up the process of winding down its monthly asset purchases, may have left defensive sectors like utilities /zigman2/quotes/210600278/delayed XX:SP500.55 -0.12% , consumer staples /zigman2/quotes/210600216/delayed XX:SP500.30 +0.14% and healthcare /zigman2/quotes/210600439/delayed XX:SP500.35 +0.21% rich relative to their cyclical peers, Stewart said.
The energy sector /zigman2/quotes/210600521/delayed XX:SP500.10 +1.96% led the way higher Tuesday, closing up 3.5%, as Brent crude , the global benchmark, traded above $80 a barrel after the Organization of the Petroleum Exporting Countries and its allies — OPEC+ — stuck to a plan to incrementally raise output by 400,000 barrels a day next month.
Investors continue to wave off concerns over the omicron variant of the coronavirus that causes COVID-19. Infections have surged, with the U.S. registering 1,083,948 cases on Monday , according to data collected by Johns Hopkins University — more than double the previous record of 486,428 set four days ago.