Stocks recoup some losses after sharp slide to start 2021

U.S. stocks closed higher Tuesday, regaining their footing a day after suffering their worst loss in months amid the worsening pandemic and potentially market-moving Senate elections.

The S&P 500 finished 0.7% higher, and the majority of big stocks in the index were up. Oil producers led the way as crude prices strengthened.

The market’s moves were tenuous, though. The S&P 500 at one point lost all of an early-morning rise even after a report showed U.S. manufacturing grew last month at its strongest pace since 2018.

“It seems like the buyers are coming back in a little bit today,” said James Ragan, director of wealth management research at D.A. Davidson. “Underlying it all is a fairly strong economic outlook.”

The two runoff elections in Georgia will determine which party controls the Senate, and some analysts say the results could mark clear winners and losers in the stock market.

The general thinking is that a Democratic sweep would open the door to higher tax rates, tougher regulation on businesses and other potentially profit-crimping changes from Washington. That would put broad pressure on the stock market, with Big Tech stocks in particular perhaps attracting more regulatory scrutiny.

But Democratic control of the Senate, White House and House of Representatives could also make another dose of big financial support for the economy more likely. Democrats have lobbied for $2,000 cash payments to go to most Americans, for example, and they could push for more spending on infrastructure projects.

Such stimulus could eventually lead to higher inflation across the economy, something that has been nearly nonexistent for years. Increasing inflation expectations have helped buoy Treasury yields recently, and the yield on the 10-year Treasury rose to 0.96% from 0.90% late Monday.

Beyond Georgia and Washington, though, worries about the worsening global pandemic continue to weigh on markets. A new, seemingly more contagious variant of the coronavirus is pushing countries to announce or consider more restrictions on businesses. That’s threatening Wall Street’s widespread belief that financial support offered by central banks and governments can keep the economy afloat until a big recovery sweeps the world later this year due to the rollout of COVID-19 vaccines.

Worries are also rising that markets have simply stormed too high since hitting bottom early last year and are setting investors up for big disappointment.