Dow aims to add to records in 2022, and S&P 500 fights for gains as rising yields hit tech-heavy Nasdaq

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MARKET SNAPSHOT

The Dow Jones Industrial Average ended at a fresh peak Tuesday, scoring back-to-back record closes in the first week of 2022, even as the broader market fell under pressure amid newfound selling in government debt that was driving long-term yields higher and interest-rate-sensitive tech shares lower.

What did major indexes do?

  • The Dow Jones Industrial Average rose 214.59 points, or 0.6%, to close at an all-time high of 36,799.65, after it established an intraday record at 36,934.84.
  • The S&P 500 slipped 3.02 points, or almost 0.1%, to end at 4,793.54 after touching an intraday all-time high at 4,818.62.
  • The Nasdaq Composite sank 210.08 points, or 1.3%, to finish at 15,622.72, after trading near session lows at 15,512.41.

On Monday, the Dow and the S&P 500 closed at records, while the Nasdaq Composite surged 1.2%, to finish just over 1% away from record territory.

What drove markets?

Stocks kicked off the session with gains, but major benchmarks ended mixed after the consumer discretionary and tech sectors came under selling pressure as Treasury yields climbed. Growth-oriented sectors are seen as more sensitive to rising rates.

“This isn’t a calm day where everything is kind of moving together,” said Ryan Detrick, chief market strategist for LPL Financial, in a phone interview Tuesday. “Tech is really taking it on the chin due to the higher yields” he said, whereas financials and banks generally are performing “very, very well.”

The S&P 500’s information technology sector finished 1.1% lower Tuesday, while the index’s financials sector rose 2.6%, according to FactSet.

Investors are focused on the Federal Reserve and the prospect for rate increases that are expected to begin as early as March. The prospect of rising rates, however, is the largest positive driver for the S&P 500, said Colin Stewart, head of Americas at Quant Insight.

Rather than a negative, multiasset signals investors see the chance of rate increases “as the appropriate thing to do and perhaps even the right timing,” Stewart said, in a phone interview. Investors appear confident COVID-19 will fade away over the next six to nine months, while rate rises will help to squelch inflation pressures.

Minneapolis Fed President Neel Kashkari said Tuesday that inflation has risen higher and lasted longer than he expected. Also, in a separate essay released on his regional bank’s website, Kashkari said that at the most-recent December Federal Open Market Committee meeting, he penciled in two rate increases in 2022. The FOMC next meets on Jan. 25-26.

The economy remains “healthy” and rates hikes are a “normal” part of the market cycle, LPL’s Detrick said. “We’re more mid-cycle,” he said, adding that “higher rates make sense this year” along with more volatility.

Meanwhile, a buildup in defensive positioning by investors heading into the Fed’s December meeting, when policy makers agreed to speed up the process of winding down its monthly asset purchases, may have left defensive sectors like utilities consumer staples and healthcare rich relative to their cyclical peers, Stewart said.

The energy sector led the way higher Tuesday, closing up 3.5%, as Brent crude the global benchmark, traded above $80 a barrel after the Organization of the Petroleum Exporting Countries and its allies — OPEC+ — stuck to a plan to incrementally raise output by 400,000 barrels a day next month.

Investors continue to wave off concerns over the omicron variant of the coronavirus that causes COVID-19. Infections have surged, with the U.S. registering 1,083,948 cases on Monday, according to data collected by Johns Hopkins University — more than double the previous record of 486,428 set four days ago.

Hospitalizations for confirmed or suspected COVID-19 cases hit a seven-day average of 97,855 on Monday, according to data from the U.S. Department of Health & Human Services cited by The Wall Street Journal. That is up 41% over the past two weeks but below the pandemic peak of 137,510 seen on Jan. 10, 2021, and a smaller peak of 102,967 seen on Sept. 4, 2021, amid the surge in the delta variant of the coronavirus.

While the rapid spread of omicron has been “startling,” the market remains optimistic that the U.S. now has tools beyond severe lockdowns to cope with the virus, including vaccines and COVID- 19 treatments, said Tom Mantione, managing director at UBS Private Wealth Management, by phone Tuesday. He said industrials rallied Tuesday after fresh economic data showed manufacturing continued to expand, even if the reading came in slightly below expectations. 

The Institute for Supply Management said its December manufacturing index dropped to an 11-month low of 58.7% compared with 61.1% in November. Economists surveyed by The Wall Street Journal had expected a reading of 60%. A figure above 50% indicates an expansion in activity.

Meanwhile, Americans quitting their jobs rose by 370,000 to a record 4.5 million in November. The quits rate rose to 3% from 2.8% in October, which also matched a prior record high. At the same time, job openings fell by 529,000 to 10.6 million on the last day of November, the Labor Department said Tuesday.

Which companies were in focus?

  • Shares of Ford Motor Co. jumped 11.7%, hitting a 21-year high, after the auto maker said it plans to nearly double production of its all-electric F-150 Lightning pickups at its Dearborn, Mich., facility to 150,000 trucks a year to meet “soaring customer demand.”
  • General Motors Co. said the semiconductor supply issues that have plagued the auto industry improved during the fourth quarter. The company said it delivered 440,745 vehicles in the fourth quarter, down 43% from a year ago, when quarterly retail sales were the best in 13 years. Dealer inventory, including in-transit vehicles on their way to dealers, totaled 199,662 at the end of the fourth quarter, up 55% from a record low of 128,757 at the end of the third quarter. GM shares rose 7.5%.
  • Apple Inc. shares fell 1.3%, after on Monday briefly crossing the threshold required for the company to achieve a $3 trillion market value.

How did other assets fare?

  • The yield on the 10-year Treasury note rose 3.8 basis points to 1.666%, the highest since Oct. 21 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. Yields and debt prices move opposite each other.
  • The ICE U.S. Dollar Index was up 0.1%.
  • Gold futures settled higher, with the February contract rising $14.50, or 0.8%, to end at $1,814.60 an ounce on Comex. West Texas Intermediate crude for February delivery the U.S. benchmark, rose 91 cents, or 1.2%, to settle at $76.99 a barrel on the New York Mercantile Exchange.
  • Bitcoin was up around 0.1%.
  • The Stoxx Europe 600 index closed 0.8% higher, while London’s FTSE 100 surged 1.6%.
  • The Shanghai Composite fell 0.2%, while the Hang Seng Index edged up 0.1% in Hong Kong and Japan’s Nikkei 225 rose 1.8%.
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