By William Watts and Joy Wiltermuth
The Dow and S&P 500 eked out gains in the final hour of trade Tuesday, while the tech-heavy Nasdaq Composite finished modestly lower, after congressional testimony from Federal Reserve Chairman Jerome Powell helped reverse a market selloff tied largely to a sharp rise in bond yields.
The Fed boss, during the first of two days of testimony in Washington, vowed to keep monetary policy accommodative, and warned that the U.S. economic recovery remains uneven and far from complete.
How did major benchmarks do?
The Dow Jones Industrial Average (DOW:DJIA) rose 15.66 points, or 0.1%, to close at 31,537.35, recording its biggest daily turnaround since Dec. 21, 2020, according to Dow Jones Market Data.
The S&P 500 (S&P:SPX) added 4.87 points, or 0.1%, to end at 3,881.37, its sharpest daily reversal since June 15, 2020.
The Nasdaq Composite (NASDAQ:COMP) fell 67.85 points, or 0.5%, finishing at 13,465.20, but had been down 3.9% at the day’s lows.
On Monday, big losses for tech shares left the Nasdaq more than 2% lower, while also weighing on the S&P 500. The S&P 500 suffered its fifth straight loss, the index’s longest losing streak since a seven-day skid that ended last Feb. 28. The Dow benefited from a rotation to more cyclically oriented stocks, eking out a gain of 27.37 points, or 0.1%.
What drove the market?
Stocks erased earlier losses in afternoon trade, after Powell told lawmakers on Tuesday that the central bank doesn’t expect to shift its accommodative policy stance until a lasting economic recovery can be achieved.
Powell, in testimony before a Senate panel , gave no indication that rising bond yields or inflation expectations would rush the Fed to begin reining in its efforts to support the economy.
Instead, the Fed chairman again emphasized that he doesn’t expect a “large or persistent” rise in inflation, even as trillions worth of stimulus slosh through the economy and swaths of the population line up to get vaccinated.
“We will be watching that very carefully,” Powell said of inflationary pressures. But he noted that the “economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.” He described the recovery as “uneven” and “far from complete,” while saying the path ahead remained “highly uncertain.” But Powell also acknowledged that “developments point to an improved outlook for later this year.”
A sharp rise in Treasury yields, which partially paused Tuesday, has captured the attention of investors, spelling trouble for tech and other previous highfliers. Rising yields make bonds a more viable alternative to stocks, particularly those that have seen their valuations stretched.
“That’s certainly a concern in the market,” Yung-Yu Ma, chief investment strategist for BMO Wealth Management, told MarketWatch in an interview, adding that while Powell made clear he doesn’t expect inflation to “change on a dime,” that inflation in today’s environment could play out differently from the past.
“It’s somewhat new territory we are wading into, given the size of the stimulus,” Ma said. “That’s what the markets are contending with.”
Shares of companies more dependent on the economic cycle have benefited, buoyed by expectations for a pickup in growth as the economy more fully reopens courtesy of aggressive fiscal stimulus, vaccine rollouts and falling COVID-19 cases.
Meanwhile, rising yields progressively have made bonds viable alternatives to stocks, especially equities that led the market higher after the onset of the COVID crisis, said Scott Knapp chief market strategist at CUNA Mutual Group.
“While very early in a process that has no guarantee it will continue, market sentiment is moving from ‘there is no alternative to stocks’ to ‘stocks look like the less-attractive alternative,'” he said. “Only time will tell if markets stay on this path.”
At the same time, with the benchmark 10-year Treasury yield currently near 1.4%, government debt still could be a tough play for yield chasers in a 2% environment for inflation.
On the fiscal front, the House Budget Committee on Monday approved a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, a first step toward likely House passage by the end of the week. While the ultimate package is likely to shrink, analysts expect its final price tag to come close to Biden’s $1.9 trillion proposal.
The S&P CoreLogic Case-Shiller home price index showed house prices rose 10% in December. The Conference Board said its index of consumer confidence rose to a three-month high of 91.3 in February from a revised 88.9 in January.
Which companies were in focus?
Snap Inc . (NYS:SNAP) shares shot 11.1% higher Tuesday, after the social-media company’s executives detailed their plans for Snapchat in an investor presentation.
Shares of electric-vehicle maker Tesla Inc. (NAS:TSLA) fell 2.2% as bitcoin dropped sharply . Tesla earlier this month revealed that it had bought $1.5 billion of the cryptocurrency.
Shares of Wells Fargo & Co. (NYS:WFC) fell 0.3% after the bank announced an agreement to sell Wells Fargo Asset Management to private-equity firms GTCR LLC and Reverence Capital Partners LP for $2.1 billion.
Palo Alto Networks Inc. (NYS:PANW) shares fell 1.7% after the cybersecurity company’s quarterly earnings outlook range fell short of the Wall Street consensus late Monday, while beating estimates for the previous quarter.
Home Depot Inc. (NYS:HD) shares lost 3.1% even after the home improvement retail giant reported fiscal fourth-quarter profit and sales that rose above expectations and boosted its dividend by 10% .
Shares of Macy’s Inc. (NYS:M) gained 3.9%, reversing an earlier loss, after the department-store retailer topped fourth-quarter expectations .
Software-as-a-service company ZoomInfo Technologies Inc. (NAS:ZI) announced fiscal fourth-quarter results late Monday that beat expectations . Shares rose 4.1%.
Shares of RealReal Inc. (NAS:REAL) skidded 13.2% after the e-commerce retailer of secondhand luxury goods late Monday delivered a wider quarterly loss and said that the pandemic had “temporarily disrupted” its path to profitability.
How did other markets perform?
The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) edged 0.7 basis points lower to 1.363%. Yields and bond prices move in opposite directions.
The ICE U.S. Dollar Index (IFUS:DXY) , a measure of the currency against a basket of six major rivals, was up 0.1%.
Oil futures closed mixed, with the U.S. benchmark (NYM:CL.1) settling 0.1% lower at $61.67 a barrel. April Brent rose 0.2% to settle at $65.37, a 13-month high. April gold futures closed 0.1% lower at $1,805.90 an ounce.
In overseas stock trading, the pan-European Stoxx 600 (STOXX:XX:SXXP) dropped 0.4% and London’s FTSE 100 (FTSE:UK:UKX) closed up 0.3%. The Shanghai Composite (SHG:CN:SHCOMP) fell 0.2%, while Hong Kong’s Hang Seng Index (HONG:HK:HSI) rose 1%.
Bitcoin BTCUSD continued to drop sharply from its high above $50,000 after Treasury Secretary Janet Yellen on Monday called the cryptocurrency an “extremely inefficient” way to conduct transactions.