S&P 500, Dow miss out on new records and snap

U.S. stocks ended mostly lower on Tuesday, capping a turbulent session that saw markets swing between small gains and losses, as momentum for a record-setting market rally slowed.

Investors were focused on the potential for another round of government spending to boost the economic recovery from the coronavirus pandemic.

What did major benchmarks do?
  • The Dow Jones Industrial Average YM00, +0.29% DJIA, -0.03% fell 9.93 points, or less than 0.1%, to end at 31,375.83, after setting an intraday record of 31,439.47.
  • The S&P 500 SPX, -0.11% closed down 4.36 points, or 0.1%, at 3,911.23, after recording an all-time intraday high of 3,918.35.
  • The Nasdaq Composite COMP, +0.14% rose 20.06 points, or 0.1%, to end at 14,007.70, a new all-time closing high.
  • The Russell 2000 RUT, +0.40% rose 0.4% to carve out a new record.

Stocks saw moderate gains Monday, pushing the Dow to its first record close since Jan. 20, while the S&P 500 and Nasdaq Composite each scored a third straight record finish. The small-cap Russell 2000 RUT, +0.40% led gains, rising 2.5% to its own record close.

What drove the market?

The rally in equities lost some steam Tuesday, after surging to a series of new highs in recent days, helped by good earnings reports, progress in Congress on President Joe Biden’s fiscal relief plan and the accelerating rollout of coronavirus vaccines, along with declining new case numbers, analysts said.

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President Joe Biden and congressional Democrats are preparing to push a another fiscal stimulus package through the Senate via a process known as budget reconciliation that would require a simple majority, likely meaning a package closer in size to Biden’s $1.9 trillion proposal.

Biden said on Tuesday he was in support of sending $1,400 stimulus payments to households earning up to $75,000 annually.

“Razor thin majorities in the House and Senate mean that Biden will not have full rein to pursue the more expansive aspects of his campaign. That said, a lot can get done through the budget reconciliation process,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

Meanwhile, the U.S. averaged 111,190 new coronavirus cases a day in the past week, down 36% from the average two weeks ago. Hospitalizations also have been falling, according to the COVID Tracking Project. There were 80,055 COVID-19 patients in U.S. hospitals on Sunday, down from 81,439 a day earlier and the lowest level since Nov. 18.

The focus on additional spending and optimism over vaccine rollouts has been positive for cyclical stocks tied more closely to the economic cycle.

“The brighter outlook for U.S. economic activity likely explains why value and ‘old economy’ stocks are spearheading this latest charge higher, while the stay-at-home tech heavyweights like Amazon, Facebook and Apple have fallen behind,” said Marios Hadjikyriacos, investment analyst at XM, in a note.

But some analysts cautioned that a renewed rise in long-term Treasury yields bears monitoring, though yields were mostly flat on Tuesday.

“Sure, equity investors like the idea of more fiscal stimulus as long as bond yields and the Fed do their part not to upset the balance. However, the rate at which the bond markets has been pushing yields higher in the past week should be seen as a warning that the bond vigilantes may have been in hibernation for a long time, but their day in the sun may be coming quicker than expected,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities U.S.A., in a note.

“For now, we expect markets to be well-mannered but there are clearly risks on the horizon that were not there a couple of weeks ago,” he said.

Upbeat expectations around the economic outlook weren’t universal.

The optimism index compiled by the U.S. National Federation of Independent Business fell 0.9 in January to 95.0, hitting the lowest level since the onset of the pandemic last spring

U.S. job openings rose to 6.65 million in December from 6.57 million a month earlier. Hiring, meanwhile, shrank by almost 400,000 in December to 5.5 million, according to the U.S. government’s job openings and labor turnover survey, otherwise known as the “Jolts” report. 

Which companies are in focus?
  • Drugmaker Eli Lilly & Co. LLY, -1.97% said chief financial officer Josh Smiley will resign after engaging in inappropriate personal communications with some employees. Lilly said that Anat Ashkenazi, a 20-year veteran of the company, would replace Smiley. Shares fell 2%.
  • Shares of Electronics Arts Inc. EA, +2.56% rose 2.6% after the videogame maker announced it would acquire Glu Mobile for $12.50 per share.
  • Shares of videogame publisher Take-Two Interactive Software Inc. TTWO, -6.11% slid 6.1% after reporting a better-than-expected outlook and results late Monday as sales saw a holiday boost during the COVID-19 pandemic.
  • Shares of DuPont de Nemours Inc. DD, -3.02% fell 3% despite the materials and chemicals company reporting fourth-quarter profit and sales that beat Wall Street expectations.
  • Shares of Goodyear Tire & Rubber Co. GT, +5.97% were up 6% after reporting profit and revenue that beat expectations.
  • Coty Inc. COTY, -15.11% shares dropped 15.1% after the beauty products company reported fiscal second-quarter adjusted profit that declined less than expected, while sales fell a bit shy of forecasts.
What did other markets do?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, 1.162% fell 0.3 basis points to 1.156%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, -0.09%, a measure of the currency against a basket of six major rivals, fell 0.5%.
  • Oil futures saw choppy trade, with the U.S. benchmark CL.1, -0.12% climbing 39 cents, or 0.7%, to settle at $58.36 per barrel. Gold futures GC00, +0.52% scored a three-day winning streak, gaining $3.30, or 0.2%, to settle at $1,837.50 an ounce.
  • The pan-European Stoxx 600 Europe index SXXP, -0.09% fell 0.1%, while London’s FTSE 100 UKX, +0.12% rose 0.1%.
  • In Asia, the Shanghai Composite SHCOMP, +1.43% rose 2%, while Hong Kong’s Hang Seng Index HSI, +1.69% rose 0.5%, and Japan’s Nikkei 225 NIK, +0.19% rose 0.4%.

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