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Market Snapshot: Dow industrials edge up, but small-caps rally about 1.5% as stock-market investors bid up reopening names

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The main U.S. stock indexes staged a modest rise Wednesday, but small-caps were climbing sharply higher, as a retreat in Treasury yields and a subdued dollar shifted investors’ focus to shares that might perform better as the economy reopens from COVID. Worries about inflation and the Federal Reserve’s plans to eventually scale back its easy-money policies were taking a bit of a back seat during the session, strategists said.

Wednesday also marks the 125th anniversary of the Dow Jones Industrial Average, which made its debut May 26, 1896.

What are major indexes doing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.20%

    rose 67 points, or 0.2%, to about 34,379.
  • The S&P 500
    SPX,
    +0.28%

    was up 11 points, or 0.3%, at 4,198.
  • The Nasdaq Composite Index
    COMP,
    +0.62%

    gained 84 points, or 0.6%, to about 13,740.
  • The small-capitalization oriented Russell 2000 index
    RUT,
    +1.61%

    was up 1.5%, or 31 points, at 2,237.

On Tuesday, stocks gave up early gains to end slightly lower. The Dow fell 81.52 points, or 0.2%, to end a three-day winning streak. The S&P 500 fell 0.2%, while the Nasdaq Composite shaved off 4 points, or less than 0.1%, to end at 13,657.17.

What’s driving the market?

Stocks remain stuck in a holding pattern, not far off all-time highs, with building inflation pressures the main concern for investors, particularly after data earlier this month showed that the April consumer-price index rose at a much hotter-than-expected 4.2% year-over-year pace.

Read: Inflation ‘surprises’ are ‘almost off the chart’ as data runs hotter than expected

Stocks may continue to struggle for direction ahead of the release Friday of the Federal Reserve’s favorite measure of inflation, the personal consumption expenditure index, analysts said.

However, investors were bidding up shares of small-cap companies on the day, while technology stocks, represented by the tech-heavy Nasdaq Composite are due for a weekly climb of 1.8% as yields for government debt trade near 3-week lows, supporting buying in assets that have performed well in a low-interest-rate environment.

“This is essentially a rebound in the reopening names,” Quincy Krosby, chief market strategist at Prudential told MarketWatch.

“At the same time, here are concerns…but the fed has been steadfast in its position that they may discuss the pace of the purchases but they are not in a hurry and they want to keep rates lower for longer,” she said.

Indeed, more Fed officials have acknowledged that a discussion about when to begin tapering may soon be in order, they have largely remained committed to extraordinary monetary policy measures, arguing that a pickup in inflation pressures is likely to prove transitory.

“With more officials maintaining a dovish stance, we stick to our guns that equities still have room to trend north for a while more, while the U.S. dollar may stay on the back foot,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note.

“That said, before getting more confident on that front, we would like to see whether committee members will keep the same stance after the release of the PCE data on Friday,” the analyst said.

Need to Know: U.S. stocks are demonstrating most of the characteristics of a bubble, but don’t sell yet, says strategist

Meanwhile, a group of Republican senators is expected to offer a roughly $1 trillion plan for infrastructure spending, up from their initial proposal of $568 billion as negotiations continue with President Joe Biden’s administration. The White House last week trimmed the size of its proposed package to $1.7 trillion from $2.3 trillion in a bid to win bipartisan support.

Meanwhile, chief executives from some of largest U.S. banks were testifying remotely before the Senate Banking Committee on Wednesday, and will appear before the House Financial Services Committee Thursday.

Lawmakers are grilling JPMorgan Chase & Co.’s
JPM,
+0.49%

Jamie Dimon, Citigroup Inc.’s
C,
+0.45%

Jane Fraser, Morgan Stanley’s
MS,
+0.71%

James Gorman, Bank of America Corp.’s
BAC,
+0.39%

Brian Moynihan, Wells Fargo & Co.’s
WFC,
+0.71%

Charles Scharf, and Goldman Sachs Group Inc.’s
GS,
+0.90%

David Solomon.

In deal news, Amazon.com
AMZN,
+0.94%

 agreed to acquire privately owned MGM Holdings for about $8.45 billion, confirming monthslong speculation and marking the latest in a steady stream of consolidation in the movie and television content business.

Which companies are in focus?
How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y was down 0.3 basis points at around 1.56%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.4%.
  • Oil futures were trading higher, with West Texas Intermediate crude for July delivery
    CLN21,
    -0.03%

    up 12 cents, or less than 0.1%, to trade at $66.19 a barrel on the New York Mercantile Exchange Gold futures GC00, rose $6.60, or 0.3%, to trade at $1,904.60 an ounce, trading above a key resistance price.
  • The Stoxx Europe 600 index SXXP, closed virtually unchanged on Wednesday, while London’s FTSE 100 UKX finished less than 0.1% lower.
  • The Shanghai Composite SHCOMP climbed 0.3%, while Hong Kong’s Hang Seng Index HSI gained 0.9% and Japan’s Nikkei 225 NIK advanced 0.3%.

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