Stocks edged higher Tuesday, though trading action was choppy, as investors appeared to take comfort in corporate earnings and awaited data later this week on inflation.
But market participants were also keeping a close eye on interest rates, with the yield on the 10-year Treasury note rising toward the 2% threshold.
The Dow Jones Industrial Average
was up 293 points, or 0.8% at 35,384.
The S&P 500
was up 28 points, or 0.6%, at 4,512.
The Nasdaq Composite
rose 122 points, or 0.9%, to 14,138.
On Monday, the Dow ended the day with a gain of around 1 point, while the S&P 500 edged down 0.4% and the Nasdaq Composite shed 0.6%.
What’s driving markets
Rising bond yields have been the story of 2022 so far, and now the talk is how soon the U.S. Treasury10-year yield
may reach 2%, after trading above 1.96% Tuesday.
Peter Garnry, head of equity strategy at Saxo Bank, says the pressure will continue for U.S. technology stocks. “The VIX
remains above 22 and financial conditions are continuing to tighten with credit spreads moving higher so this should be key to monitor for equity investors,” he said. The VIX, or the Cboe Volatility Index, is a measure of expected volatility, its long-term average is just below 20.
Related: Buy the dip? Why the stock market’s bounce off January lows may prove premature
Rising yields can be a negative tor tech and other so-called growth stocks, whose valuations are based on expectations for rapidly growing profit and cash flows far into the future. As yields rise, the present value of that future cash falls.
But investors appeared to take comfort in a round of mostly positive corporate earnings, including a surprise profit from Harley-Davidson Inc. HOG that sent share of the motorcycle maker up 14%.
Meanwhile, strategists at UBS say they are sticking to their earnings forecasts for the year, and their S&P 500 price target of 5,100 by the end of the year.
“While there remains a risk that the Federal Reserve could tighten by more than markets expect — currently six hikes of 25 basis points each — this is not our base case. With demand remaining healthy, we advise investors to focus on winners from global growth. Against a backdrop of rising rates, we expect value sectors to outperform growth sectors,” said Mark Haefele, chief investment officer for global wealth management at UBS.
The January reading of the U.S. consumer-price index, due Thursday morning, is shaping up as the key piece of economic data for the week.
In economic data Tuesday, the U.S. international trade deficit widened in December by 1.8% to $80.7 billion, marking it the second largest monthly increase ever. Economists polled by The Wall Street Journal had forecast a $82.9 billion shortfall. The deficit jumped 27% in 2021 to a record $859 billion largely because a recovering economy gave Americans the means to buy more imports, though they also paid higher prices due to rising inflation.
The National Federation of Independent Business said its small-business optimism index slipped 1.8 percentage points in January to 97.1 — an 11-month low. The NFIB said a net 61% of small businesses increased prices at the beginning of the new year, the highest percentage since 1974.
Companies in focus
- The hurdles tech companies face in attempting to grow via deal making was underlined as Nvidia Corp. NVDA dropped its planned $40 billion acquisition of microchip designer Arm Holdings from Japanese investor SoftBank after regulatory opposition. Nvidia said it plans to take a $1.36 billion first-quarter charge. Shares of Nvidia reversed early weakness to rise 0.8%.
At-home fitness company Peloton Interactive Inc.
confirmed that co-founder John Foley will step down as chief executive and that it will implement a cost-cutting plan that will lead to 2,800 job cuts. Shares jumped nearly 27%.
Shares of Pfizer Inc.
fell 4% after the drugmaker topped Wall Street profit forecasts but missed on revenues.
Shares of Norwegian Cruise Line Holdings Ltd.
were up 3.4% after the cruise operator confirmed that it expects to be profitable in the second half of 2022, but pushed back its timing to be cash flow positive as the omicron variant hurt bookings.
What other assets are doing
The ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, rose 0.2%.
Oil futures extended a pullback from seven-year highs on optimism over a potential revival of the Iranian nuclear deal, with the U.S. benchmark
down 2.5% at around $89 a barrel. Gold futures
The Stoxx 600 Europe
was virtually flat, while the FTSE 100
edged down 0.1%.
The Shanghai Composite
rose 0.7%, while the Hang Seng Index
fell 1% in Hong Kong and Japan’s Nikkei 225
edged up 0.1%.