Stocks climb modestly as Treasury yields rise
Wall Street capped a wobbly day of trading Tuesday with modest gains, while Treasury yields extended their recent rally.
The Standard & Poor’s 500 index inched up less than 0.1% after f lipping between small gains and losses for much of the day. About 62% of companies in the index rose, with energy sector stocks notching the biggest gain as crude oil prices rose. Companies that rely on consumer spending also helped lift the market, outweighing declines in healthcare, communications and technology stocks.
Small- company stocks continued to outpace the rest of the market by a wide margin, a sign that investors are becoming more optimistic about an economic rebound. The Russell 2000 small- cap index climbed to a record high.
Banks and other f inancial companies added to recent gains as Treasury yields marched higher for the sixth straight day amid expectations that the economy will pull out of its slump after a powerful recovery sweeps the globe later this year. Bond yields can inf luence interest rates on mortgages and other consumer loans, boosting bank revenue.
The S& P 500 rose 1.58 points to 3,801.19. The Dow Jones industrial average gained 60 points, or 0.2%, to 31,068.69. The Nasdaq composite added 36 points, or 0.3%, to 13,072.43. The three indexes remain close to the all- time highs each set Friday .
Markets have been charging higher recently amid a wave of optimism about the future. The rollout of coronavirus vaccines has Wall Street anticipating a big rebound for the economy and corporate profits as daily life starts to return to normal later this year. Expectations are also rising for another round of stimulus coming for the economy because Democrats are set to soon have control of the White House, Senate and House.
But the gains have been so big that critics say stocks and other investments simply look too expensive. Some measures of value in the stock market are at their priciest levels since 2000, when the dot- com bubble was popping. That includes how much investors are paying for each $ 1 in profit that a company produces.
Low interest rates and almost nonexistent inf lation have been encouraging investors to keep piling into stocks, even though their prices are rising faster than their profits. But longerterm interest rates have begun to rise with expectations for more borrowing by the U. S. government, economic growth and possibly inf lation in the future. The yield on the 10- year Treasury brief ly hit 1.18% on Tuesday before easing back to 1.14%. That’s up from 1.12% late Monday and from less than 0.90% at the start of the year.
Besides driving investors away from pricey stocks, higher interest rates can also make borrowing more expensive and hit the housing and other industries particularly hard. That could mean additional pressure on the Federal Reserve, which has been trying to keep interest rates low to jolt the economy out of its pandemic- caused weakness.
The Fed has held shortterm interest rates at a record low of nearly zero and bought all kinds of bonds in its drive to help the economy. Its next policy meeting on interest rates is in two weeks.
And despite all the hopes for the future, the present remains bleak. The pandemic is accelerating around the world, particularly as new and potentially more contagious variants of the coronavirus spread. That helped force U. S. employers to cut more jobs than they added in December, the first month that’s happened since the economy was collapsing during the spring.
Energy stocks made broad gains as crude oil prices advanced. Occidental Petroleum climbed 12.6% for the biggest gain in the index, while Marathon Oil rose 9.8%.
General Motors jumped 6.2% amid excitement about a business unit it’s creating to sell electric- powered delivery vehicles and equipment.
Stocks of smaller companies also rallied. The Russell 2000 gained 36.95 points, or 1.8%, to 2,127.96, a record high. Small companies have been leading the market in recent weeks as investors see them benefiting much more from a healthier economy than behemoth companies that managed to largely sustain themselves through the pandemic.
On the losing end were several Big Tech stocks that cruised as work- from- home and other trends beneficial to them boosted their profits. Microsoft slipped 1.2%, Facebook fell 2.2% and Google’s parent company, Alphabet, lost 1.1%.
Profits will be in focus in upcoming weeks as companies report how much they made during the last three months of 2020. .