U.S. equity indices traded with modest gains on Wednesday afternoon, possibly helping to steer the Nasdaq Composite away from its first close in correction territory since March, despite a backdrop of significantly higher bond yields and high inflation. .
Bank stocks remained in the spotlight, with Morgan Stanley and Bank of America posting quarterly results.
How are stock indices traded?
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The S&P 500 SPX Index
rose 11 points, or 0.3%, to 4,589, led by lower consumer discretionary XX:SP500
and financial XX:SP500. -
The Dow Jones Industrial Average DJIA
rose 37 points, or 0.1%, to 35,408, with declines Caterpillar Inc.. CAT,
Boeing Co.
BA,
American Express Co.
AXP,
and Goldman Sachs Group Inc.
GS,
weighing on the prime index. -
The Nasdaq COMP Composite Index
edged up 0.5%, or 67 points higher, to 14,571, trading below its correction level at 14,451.69. The tech-laden index has not closed in a correction since March 8, 2021.
Shares fell sharply on Tuesday, with the Nasdaq Composite dropping 2.6% to end below its 200-day moving average.
What drives the markets?
Markets were pushing slightly higher on Wednesday afternoon in volatile trading, a potential sign of the new “normal” for stocks, as the Federal Reserve seeks to tighten financial conditions and rein in inflation.
“I don’t think this will be a short-lived period of volatility,” Matt Peron, Janus Henderson’s research director, said in a phone interview. “There is a lot of policy standardization that needs to happen. There are a lot of shifts in investor thinking that need to happen, and these usually take time.
While Peron said he was “constructive long-term” for equities, he also expects the next three to six months to be choppy as the Fed seeks to rein in the easy monetary conditions that have been unleashed. during the pandemic.
Soaring Treasury yields weighed on the market’s uptrend, hitting yield-sensitive tech and other growth stocks particularly hard. The yield on the 10-year Treasury note BX:TMUBMUSD10Y
Wednesday was around 1.84%, pulling back somewhat, but close to levels not seen since early 2020.
Read: Stock market warning signal: Here’s what rising bond yields say about S&P 500 returns
The yield on the 2-year Treasury note BX:TMUBMUSD02Y,
more sensitive to Federal Reserve policy expectations, fell 3 basis points to 1.01%, after hitting its highest level since February 2020.
“There is concern that…the Fed won’t ease monetary policy normalization because it’s so behind the curve,” Kristina Hooper, chief global market strategist at Invesco, told MarketWatch. .
But she also sees inflation, which the Fed now intends to fight, weigh on the stock market. “In a number of revenue calls, we hear about increased spending…we hear about increased compensation,” Hooper said, noting that wage inflation tends to last longer.
The Fed is due to meet next Tuesday and Wednesday, although many believe January will be too early to register the first interest rate hike. But “there is a very good chance that policymakers will indicate a rise is on the way when the QE program comes to an end in two months,” said Matthew Ryan, senior market analyst at Ebury, in a note. .
In U.S. economic reports, homebuilders began building homes at a seasonally-adjusted annual rate of about 1.7 million in December, representing a 1% increase from the previous month, reported Wednesday the US Census Bureau. Compared to December 2020, housing starts increased by 2.5%.
Meanwhile, permits for new homes came in at a seasonally adjusted annual rate of 1.87 million, up 9% from November and 6.5% from a year ago.
Separately, crude oil price CL00
BRN00
were rising, after hitting levels not seen since 2014 on Tuesday. Oil extended its gains late in the session amid reports that an explosion disrupted flow through the Kirkuk-Ceyhan pipeline between Iraq and Turkey.
On Wednesday, the International Energy Agency predicted that global oil demand will exceed pre-pandemic levels this year due to increased vaccination against COVID-19 and recent milder waves of the virus. .
West Texas Intermediate Crude for February delivery CLG22
was last up 2% at around $87 a barrel.
Read: RBC analyst says he got Exxon wrong as oil giant shifts to sector performance
Which companies are targeted?
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Investors were looking at a report of Bank of America
BAC
after the monetary hub bank reported fourth-quarter profit that beat expectations. The shares rose 0.5%. - Morgan Stanley MS shares were in focus after the bank beat fourth-quarter earnings estimates amid strong performance from its investment banking and wealth management divisions. Its stock rose 2%.
- Procter & Gamble Co. Shares of PG rose more than 4.2% on Wednesday after the consumer products company reported fiscal second-quarter results that beat expectations and lowered its full-year sales forecast.
- UnitedHealth Group Inc.. UNH reported fourth quarter earnings and revenue that beat expectations and confirmed its outlook for the full year. Its stock rose 1.4%.
-
U.S. listed shares of ASML Company
ASML
rose 0.1% after the Dutch semiconductor equipment maker reported better-than-expected fourth-quarter profits, predicted a 20% increase in sales this year and doubled its dividend to €5.50 . -
SoFi Technologies Inc. SOFI shares
climbed about 17.5% after the fintech group said it had obtained regulatory approval to become a bank holding company. -
Shares of Zogenix Inc.
ZGNX
jumped 67% in premarket trading after the biopharmaceutical company agreed to an acquisition deal by Belgian counterpart UCB in a deal valued at $1.9 billion.
How are the other assets doing?
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The ICE US Dollar Index DXY, a measure of the currency against a basket of six rivals, fell 0.2%.
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GC00 gold futures rose 1.6% to trade at $1,841 an ounce.
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The Stoxx Europe 600 SXXP closed 0.2% higher, but far from its high, while London’s FTSE 100 UKX, a commodity-focused index, rose 0.4%.
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The Shanghai Composite SHCOMP fell 0.3%, while the Hang Seng HSI index rose less than 0.1% in Hong Kong and the Nikkei 225 NIK fell 2.8%.
—Barbara Kollmeyer contributed reporting
