Wall Street closed mixed on Tuesday based on mixed economic conditions. The Dow rose sharply as market participants’ shrugged off Omicron fears. On the other hand, the Nasdaq Composite tumbled on soaring government bond yields. The S&P 500 fell marginally.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) surged 0.6% or 214.59 points to close at 36,799.65, marking a new closing high. In intraday trading, the blue-chip index recorded an all-time high of 36,934.84. Notably, 20 components of the 30-stock index ended in green while 10 in red. However, the tech-heavy Nasdaq Composite finished at 15,622.72, sliding 1.3% or 210.08 points due to weak performance by large-cap technology stocks.
Meanwhile, the S&P 500 fell 0.1% to end at 4,793.54. In intraday trading, the broad-market index recorded an all-time high of 4,818.62. Six out of eleven sectors of the benchmark index closed in negative territory while five in green.
The Industrials Select Sector SPDR (XLI), the Energy Select Sector SPR (XLE), the Financials Select Sector SPDR (XLF) and the Materials Select Sector SPDR (XLB) gained 2%, 3.5%, 2.62% and 1.2%, respectively. The Technology Select Sector SPDR (XLK) and the Health Care Select Sector SPDR (XLV) dropped 1.1% and 1.3%, respectively.
The fear-gauge CBOE Volatility Index (VIX) was up 1.9% to 16.91. A total of 11.49 billion shares were traded on Tuesday, lower than the last 20-session average of 10.4 billion. Advancers outnumbered decliners on the NYSE by a 1.12-to-1 ratio. On Nasdaq, a 1.44-to-1 ratio favored declining issues.
Government Bond Yield Rises
The Fed will terminate its quantitative easing program in March 2022. A large section of economists and financial researchers are expecting the central bank to hike the benchmark lending rate for the first time in three years either in March or in April.
As a result, the yield on the benchmark 10-Year U.S. Treasury Note climbed to 1.71% on Tuesday. The yield was at about 1.65% on Monday and 1.51% on Friday, last week. Notably, the yield on the 10-Year U.S. Treasury Note is linked to lending rates for mortgages and many other business and consumer loans.
A hike in interest rate will raise the cost of funds, which would enable the financial sector, especially banks, to widen the spread between longer-term assets, such as loans, with shorter-term liabilities, thus boosting profits margins.
Consequently, shares of major banks like The Goldman Sachs Group Inc. GS and JPMorgan Chase & Co. JPM gained 3.1% and 3.8%, respectively. Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Surging Yields Pull Down the Technology Sector
Higher market risk-free returns mean a higher discount rate for future cash flows from stock investing. This will affect the growth-oriented stocks — especially the technology stocks — as these stocks generally provides higher returns over a long term.
Moreover, these companies depend on easy access to cheap credit to expand their businesses. In fact, the Fed Chairman also indicated that the first hike of the lending rate from the current level of 0-0.25% may come earlier-than-expected. Higher interest rate will be detrimental to technology stocks.
The Institute of Supply Management reported that the U.S. manufacturing index for the month of December slid to a 11-month low at 58.7. The consensus estimate was 60.3. The reading for November was 61.1. Notably, any reading above 50 indicates expansion in manufacturing activities.
The Department of Labor reported that Americans those quitted jobs rose by 370,000 to came in at 4.53 million in November. This was an increase of 8.9% from October and surpassed September’s data of 4.36 million. The number of job openings totaled 10.56 million in November compared with 11.09 million in October.
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