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.
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.
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.
Which companies were in focus?
Mission Produce Inc. (NAS:AVO) shares rose 2.7% after the company said it was entering the mango market. The company said it owns 300 hectares of mango production in Peru, and is on track to source additional fruit from other regions.
Second Sight Medical Products Inc . (NAS:EYES) shares soared 103.3% on heavy volume Monday, bringing its two-day gain to more than 700%, after the Food and Drug Administration approved the company’s Argus 2s Retinal Prosthesis System for the treatment of retinitis pigmentosa.
DuPont Inc. (NYS:DD) announced an agreement Monday to buy Laird Performance Materials from private-equity firm Advent International for $2.3 billion in cash. DuPont shares rose 1.6%.
Shares of GameStop Corp . (NYS:GME) surged 41.2% after the company appointed a strategy committee that included Chewy Inc. co-founder Ryan Cohen.
General Electric Co. (NYS:GE) is nearing a $30 billion-plus deal to combine its aircraft-leasing business with Ireland’s AerCap Holdings NV , The Wall Street Journal reported, citing people familiar with the talks. GE shares gained 4.2%.
Shares of Athene Holding Ltd . (NYS:ATH) jumped 6% Monday, after the company announced it had agreed to be acquired by investment manager Apollo Global Management Inc.
AMC Entertainment Holdings Inc. (NYS:AMC) shares were 15.4% higher after scoring a price-target increase from Wedbush.
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.
William Watts provided additional reporting