U.S. stocks were lower Tuesday morning, as traders looked to confirmation-hearing testimony by Federal Reserve Chairman Jerome Powell for clues to how fast interest rates may rise in 2022, while tech-related shares attempted to push higher after reversing heavy losses in the previous session.
What are major indexes doing?
-
The Dow Jones Industrial Average
DJIA,
+0.06%
fell 202.03 points, or 0.6%, to 35,866.84. -
The S&P 500
SPX,
+0.40%
was down 20.11 points, or 0.4%, to 4,650.18. -
The Nasdaq Composite
COMP,
+1.13%
was down 21.13 points, or 0.1%, after briefly pushing into positive territory.
On Monday, the Dow and S&P 500 ended lower, while the Nasdaq Composite closed fractionally higher. According to Dow Jones Markets Data, the Nasdaq’s reversal from a 2.7% slide earlier was the strongest intraday reversal since Feb. 28, 2020. The late-day reversal was driven by companies that had seen the worst year-to-date performance, according to Bespoke Investment Group.
What’s driving the market?
Market participants were tuned to Jerome Powell’s nomination hearing to serve a second term as chairman of the Federal Reserve, as well as speeches from regional Fed presidents throughout the day, with an eye on Wednesday’s inflation data.
Read: 4 mistakes the Powell Fed made—from a former insider
In prepared testimony to be delivered at Senate Banking Committee hearing, released late Monday, Powell said the Fed would take steps to make sure higher inflation seen over the past year won’t be allowed to develop deep roots in the economy.
“During Jerome Powell’s Senate confirmation hearing, I expect political grandstanding, but that is a comment on the Senate participants, not Chairman Powell himself,” said David Bahnsen, chief investment officer at the Bahnsen Group. “I believe Powell will stick to his script, as he generally is disciplined enough to do and I’m not expecting anything that would surprise markets.”
Powell is widely expected to be confirmed by the Senate.
Meanwhile, Kansas City Fed President Esther George, in a Tuesday speech, said the central bank should speedily reduce its enormous $8.5 trillion pile of bondholdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.
Cleveland Fed President Loretta Mester said she would back a rate increase in March if the economic backdrop resembles current conditions. Mester said she sees the Fed raising rates three times in 2022. George and Mester are both 2022 voting members of the Fed’s policy-setting Federal Open Market Committee.
Tech and other so-called growth stocks — shares of companies whose revenue and earnings are expected to grow faster than average — have been hard hit as Treasury yields have risen in response to expectations the Fed will be much more aggressive than previously anticipated in raising rates in an effort to rein in well above-target inflation.
The minutes from the December FOMC meeting released last week showed the central bank considering multiple rate increases this year and reducing its nearly $9 trillion balance sheet, that is still growing as the previous quantitative easing program is wound down. Some Wall Street banks, including Goldman Sachs and Deutsche Bank, now look for the Fed to raise interest rates four times in 2022, versus the three hikes penciled in by Fed policy makers in what’s known as the dot-plot forecast.
The yield on the 10-year Treasury
TMUBMUSD10Y,
ended Monday at the highest level since Jan. 17, 2020, pulling back slightly Tuesday. The 10-year yield has surged more than 25 basis points this year.
“We would not be surprised if tech and large cap growth stocks stage comeback rallies here and there along the way, but ultimately we believe the rotation into value is the better trend in 2022,” Bahnsen said, in emailed comments. “Our posture is that the broad market indices are vulnerable, and tech is the largest weightings in those broad market indices, but bottom-up selectivity still offers ample opportunities of value in this environment.”
Which companies are in focus?
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Shares of American Airlines Group Inc.
AAL,
+1.17%
fell 1.5% after the carrier updated its fourth-quarter guidance to reflect a performance that turned out not to be as bad as expected. -
Life-sciences company Danaher Corp.
DHR,
-0.31%
said it expects fourth-quarter core revenue growth to exceed its own guidance, boosted by better-than-expected results at all three of its operating segments. Shares rose 0.6%.
How are other assets trading?
-
The ICE U.S. Dollar Index
DXY,
-0.33% ,
a measure of the currency against a basket of six major rivals, was down 0.1%. -
Oil futures pushed higher, with the U.S. benchmark
CL00,
+3.80%
up 1.7%, while gold futures
GC00,
+0.92%
edged up 0.5%. -
Bitcoin
BTCUSD,
+2.77%
was down 0.4%. -
The Stoxx Europe 600
SXXP,
+0.85%
rose 0.8%, while London’s FTSE 100
UKX,
+0.59%
gained 0.3%. -
The Shanghai Composite
SHCOMP,
-0.73%
fell 0.7%, while the Hang Seng Index
HSI,
-0.03%
ended fractionally lower and Japan’s Nikkei 225
NIK,
-0.90%
lost 0.9%.
Read More: Dow down over 200 points as investors focus on testimony from Fed’s Powell