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March 8, 2021, 4:48 p.m. EST

Dow rally ends shy of 32,000, while tech selloff leaves Nasdaq in correction territory

By Joy Wiltermuth and Andrea Riquier

The Dow Jones Industrial Average closed higher, but shy of the 32,000 mark Monday, while the tech-heavy Nasdaq Composite ended sharply lower to enter correction territory — underlining a stock-market rotation being driven by a continued rise U.S. Treasury yields.

The volatile session followed the Senate’s passage over the weekend of a $1.9 trillion COVID-19 relief package.

What did major benchmarks do?

  • The Dow (DOW:DJIA) rose 306.14 points, or 1%, to end at 31,802.44, after rising more than 650 points at its session high to notch an intraday record above the 32,000 milestone.

  • The S&P 500 (S&P:SPX) fell 20.59 points, or 0.5%, closing at 3,821.35, after trading as high as 3,881.06.

  • The Nasdaq Composite (NASDAQ:COMP) , skidded 310.99 points, or 2.4%, finishing at 12,609.16.

  • The Russell 2000 index (USA:RUT) of small-cap stocks gained 0.5% to close at 2,202.98.

The Nasdaq Composite fell into a correction Monday, defined as a drop from a recent peak of at least 10% but no more than 20%, its first such plunge since  early September  of 2020.

What drove the market?

Markets are being driven by expectations that aggressive fiscal spending, coupled with a rapidly reopening economy as vaccine rollouts continue, could result in a near-term surge in inflation.

Those expectations have contributed to a rise in government bond yields , while also helping fuel a rotation away from growth-oriented stocks with high valuations toward stocks left behind in the stock market’s post-COVID recovery.

“This is what I call a stealth correction,” said Keith Lerner, chief market strategist for Truist Advisory Services. “Money isn’t leaving the market, it is adjusting,” he said, adding that the reset has been concentrated in areas viewed as most frothy.

Need to Know: Tech stocks are selling off. Don’t buy the dip, sell the bounces, strategist says

After a few weeks of intense selling, some of last year’s highfliers may be oversold, Lerner told MarketWatch, and the correction may be nearly over. “I think we’ll start to see the 10-year stabilize. The overall trends still look fine as a whole. This is a grind-higher market: two steps forward, one step back.”

Billionaire investor David Tepper, founder of Appaloosa Management, on Monday also called for bonds to stabilize, predicting renewed buying interest from Japan following the recent rise in yields. Tepper, whose remarks often move market, said it was “very difficult to be bearish” on equities.

Key Words: Why David Tepper says it is ‘very difficult to be bearish’ on stock market right now

Renewed optimism around shares of financial companies, including Goldman Sachs Group Inc (NYS:GS) and American Express C o. (NYS:AXP) , which would benefit from rising rates and an accelerated reopening of the economy, helped fuel the Dow’s ascent.

“Our view is that value stocks are having a moment,” David Bianco, chief investment officer for the Americas at DWS Group, told MarketWatch. “They deserve their moment, but financials are the sector, within value and recovery, that has legs.”

Bianco said that is partly because of the new stimulus package’s focus on helping households, small businesses and local governments that have been hardest hit by the pandemic. “It’s going to be less of a boost to earnings, but a more significant boost to long-term interest rates, which helps financials,” he said.

However, Bianco emphasized: “Don’t give up on growth.” So long as interest rates grind upward, without surging, he expects highflying stocks that rose sharply last year to continue to perform well over the longer term.

The Centers for Disease Control and Prevention said Monday that Americans who have been fully vaccinated against COVID-19 can gather in small groups, indoors, but warned that masks and social-distancing precautions still should be observed in public to prevent spreading the disease.

The 10-year Treasury yield (XTUP:BX:TMUBMUSD10Y) touched the highest level in over a year Monday, after booking its fifth straight weekly rise . Yields, which move in the opposite direction of prices, continued to increase, with the rate on the 10-year note up 4.3 basis points to 1.594%.

The Senate on Saturday narrowly passed a $1.9 trillion COVID-19 relief package , which now goes back to the Democratic-controlled House. The House is expected to approve it by the end of the week, giving President Joe Biden an early legislative victory.

Economic Preview: The U.S. economy is ready to surge again. So is inflation

The economic calendar for Monday was light. Wholesale inventories gained 1.3% for the month in January, as expected.

Read: Housing is a luxury? Here’s what the K-shaped recovery means for real estate

Which companies were in focus?

How did other assets fare?

  • The dollar was trading up 0.5%, as measured by the ICE U.S. Dollar Index (IFUS:DXY) , to 92.41. Read: Dollar bottom or bear-market bounce? Here’s what traders are watching

  • Oil futures closed lower, with the U.S. benchmark (NYM:CL.1) down 1.6%, to settle at $65.05 a barrel. Crude prices surged Sunday night, with global benchmark Brent crude briefly topping $71 a barrel after Saudi Arabia said its biggest oil storage facility and export terminal suffered drone and missile attacks by Yemen’s Houthi rebels.

  • Gold futures (NYM:GC00)  lost 1.2%, to settle at an 11-month low of $1,678, as rising yields took some of the luster from the precious metal.

  • European stocks jumped, with the pan-European Stoxx 600 index (STOXX:XX:SXXP)  closing up 2.1% and London’s FTSE 100 (FTSE:UK:UKX)  ending 1.3% higher.

  • Stocks pulled back in Asia: the Shanghai Composite  SHCOMP  slid 2.3%, Hong Kong’s Hang Seng Index  HSI  lost 1.9%, and China’s CSI 300  000300  tumbled 3.5%. Japan’s Nikkei 225  NIK  shed 0.4%.

Read: 5 reasons why negative repo rates are different than the last overnight-funding crisis

William Watts provided additional reporting

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