Dow edges higher after best one-day rally in months

U.S. stocks struggled for direction Tuesday afternoon, with the blue-chip Dow Jones Industrials index holding onto modest gains, a day after major indexes put in their best daily gains in months and global bond yields halted their rapid and unsettling rise.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average DJIA, -0.12% was up 47.96 points, or less than 0.2%, at 31,583.47.
  • The S&P 500 SPX, -0.34% was flat at 3,901.80.
  • The Nasdaq Composite COMP, -1.11% dropped 77.97 points, or 0.6%, to 13,510.86.

On Monday, the Dow booked its best daily gain since Nov. 9, the Nasdaq Composite Index registered its best day since Nov. 4, while the S&P 500 finished the session with its best daily gain since June 5.

What’s driving the market?

Equity markets lacked direction a day after upbeat reports on the strength of the economy and a slight pullback in sovereign bond yields provided some support for risky assets as the outlook for the COVID-19 pandemic improves.

Economically sensitive, cyclical sectors like energy and financials continue to outperform the broader market amid optimism about the coronavirus vaccine rollout.

Last week’s rise in bond yields reflected expectations that the distribution of vaccines from the likes of Johnson & Johnson JNJ, +0.03% and other drugmakers, as well as a likely imminent infusion of fresh government spending, will drive up inflation and bond yields, as well as economic growth, in the second half of 2021.

“Markets are a bit on edge. Last week’s interest rates moved too fast for comfort. But it’s confirmation of the reflationary environment taking hold. That’s what the Fed and the market should be wanting,” said Karyn Cavanaugh, chief investment officer at Carolinas Wealth Management, in an interview.

Investors saw more guidance from Federal Reserve speakers. Fed Gov. Lael Brainard said on Tuesday the U.S. economy is likely to experience a “burst” of short-lived inflation rather than a durable shift in price levels.

Read: After Australia soothes global market worries, will other central bankers step up?

Brainard also said some of the interest-rate swings last week caught her eye, and that she would be concerned if it led to a tightening of financial conditions.

Over the past few sessions, investors have fretted the Fed’s lack of reaction to higher bond yields could fuel further selling in the Treasurys market.

Meanwhile, concerns about bubbles and overvalued parts of the market were a source of concern for Chinese regulators. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission and Party secretary of the central bank warned at a briefing in Beijing that stock values were disconnected with economic fundamentals in the U.S. and Europe, reported Bloomberg News and Reuters.

Investors were also focused on developments on the vaccine front. President Joe Biden will announce later Tuesday that Merck & Co. Inc.  MRK, +0.65% will help make Johnson & Johnson’s  JNJ, +0.03% one-shot COVID-19 vaccine in an unusual agreement between two competitors that could lead to a significant boost in supply, the Washington Post reported Tuesday.

Looking ahead, markets may focus on Biden’s picks to lead the Securities and Exchange Commission, Gary Gensler, and the Consumer Financial Protection Bureau, Rohit Chopra, who are both participating in confirmation hearings before the Senate Banking, Housing and Urban Affairs Committee.

Which stocks are in focus?
  • Shares of Target Corp. TGT, -5.15% fell 4.9% after the discount retail giant reported fiscal fourth-quarter profit and sales that rose above expectations, boosted by growth in traffic and average ticket and as digital sales more than doubled.
  • Kohl’s Corp. KSS, +0.68% shares rose 1.3% after the retailer reported fourth-quarter earnings and sales that topped Wall Street forecasts.
  • Shares of Twitter Inc. TWTR, -4.34% fell 3% after the social media company announced the pricing of its $1.25 billion convertible debt offering
  • Hertz Global Holdings Inc. HTZGQ, -24.39%  on Tuesday filed a plan of reorganization with the U.S. Bankruptcy Court for the District of Delaware and said it expects to emerge from chapter 11 bankruptcy by early to midsummer.
  • AutoZone Inc. shares AZO, +1.03%  rose 1.1%, after the car parts maker’s second-quarter earnings blew past estimates.
  • Shares of Lumber Liquidators Holdings Inc. LL, -4.00% fell 4.6%, after the hardwood-flooring retailer reported fourth-quarter profit and sales that beat expectations, while not providing financial guidance given uncertainties resulting from the COVID-19 pandemic.
  • Zoom Video Communications Inc. ZM, -6.07% slipped 4.4% after the video communications company reported fourth-quarter net income of $260.4 million, or 87 cents a share, compared with net income of $15.3 million in the year-ago quarter.
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