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Market Snapshot: Dow slides 260 points as Yellen says interest rate increases may be necessary to prevent economy overheating

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Stocks fell Tuesday midday, led lower by heavy losses for tech-related shares, a day after the S&P 500 index and the Dow Jones Industrial Average put in a strong start to May, pushing the equity benchmarks near records.

Investors eyed comments from U.S. Treasury Secretary Janet Yellen, who said interest rates could rise a bit if the economy overheated.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average
    DJIA,
    -0.42%

    fell 262.86 points, or 0.8%, to 33,850.37.
  • The S&P 500
    SPX,
    -1.18%

    was off 59.95 points, or 1.4%, at 4,132.71.
  • The Nasdaq Composite
    COMP,
    -2.57%

    dropped 395.88 points, or 2.9%, to 13,499.24.

On Monday, the Dow advanced 238.38 points, or 0.7%, ending at 34,113.23, its third-highest close in history; the S&P 500 added 11.49 points, or 0.3%, to close at 4,192.66, its second-highest finish ever; while the Nasdaq Composite fell 67.56 points, or 0.5%, finishing at 13,895.12, as it posted back-to-back declines.

What’s driving the market?

Investors honed in on comments by Yellen, in an interview with the Atlantic magazine that was recorded Monday and aired Tuesday, saying interest rates may have to rise a bit to prevent the economy from overheating, but those remarks were made in the larger context of a speech where she also said inflation would not be an issue.

“The stock market is cautious,” said Kristina Hooper, chief global market strategist at Invesco, in a Tuesday note.

“After all, stocks have already rallied dramatically, and there are concerns about the unsustainability of the current very positive environment given that government debt is growing and higher taxes are expected,” she wrote. “This caution is also borne of being monetary policy-dependent, because sticky inflation could be around the corner, and that might force the Fed to remove the punch bowl.”

Tech-related shares were leading the move to the downside on Tuesday, with heavyweights Tesla Inc.
TSLA,
-3.11%
,
Google parent Alphabet Inc.
GOOG,
-2.99%

GOOGL,
-3.20%

and Apple Inc.
AAPL,
-4.07%

shares each off over 3%.

See: Epic CEO: I decided to sue Apple because of App Store’s ‘negative impact’

Investors are weighing the strength of corporate earnings and the economic resurgence from the COVID pandemic against worries about inflation and concerns that prices for equities don’t have much further room to run higher given current valuations.

MarketWatch’s Mark Hulbert notes that by one measure stock valuations are higher than 98% of monthly readings since 1881, and more than double the 140-year average, suggesting an extremely overvalued market.

Read: Stock market peak? The ‘easy money’ has been made, but there’s still room for gains

On Monday, a closely watched manufacturing report from the Institute for Supply Management for the U.S. disappointed, falling to 60.7% in April from a 38-year high of 64.7% in the prior month. Economists surveyed by Dow Jones and The Wall Street Journal had forecast the ISM index to edge up to 65%.

In economic data Tuesday, the U.S. trade deficit rose 5.6% in March to a record $74.4 billion, reflecting a robust appetite for consumer goods as the economy gains speed. Data also showed U.S. factory orders rose 1.1% in March.

On the public health front, the U.S. Food and Drug Administration is expected to authorize Pfizer’s COVID-19 vaccine for ages 12 to 15 by next week, according to the Associated Press, citing a federal official and a person familiar with the process, setting up shots for many before the beginning of the next school year. Meanwhile, India is second to the U.S. by cases at 20.3 million and third by fatalities at 222,408.

Which companies are in focus?
  • Shares of CVS Health Corp
    CVS,
    +3.97%

    rose 3%, after the drugstore chain and healthcare services company reported first-quarter profit and sales that rose above expectations, with growth in all segments, and raised its full-year outlook.
  • Shares of Pfizer Inc
    PFE,
    -0.10%

    were off 0.1%, after the drug giant beat earnings expectations and raised its full-year outlook, as revenue expectations for its COVID-19 vaccine jumped 73%. 
  • Precipio Inc.’s stock 
    PRPO,
    +12.93%

    soared 44%, adding to gains of more than 170% on Monday, after the specialty diagnostics company, said its COVID-19 rapid antibody test is now available on Amazon.com’s AMZN business platform.
  • Shares of DuPont IncDD fell 1.2% after the specialty materials, chemicals and agricultural products company reported first-quarter profit and sales that beat expectations, with all of its business segments showing growth, and raised its full-year outlook. 
  • Arconic Inc. ARNC shares rose 14%, after the company posted better-than-expected first-quarter earnings and raised guidance, citing higher aluminum prices and strong orders from the aerospace sector. 
  • Shares of ConocoPhillips COP pulled back 1.2%, after the oil-and-gas company reported first-quarter earnings that beat expectations, and announced the resumption of share repurchases and plans to start selling off its Cenovus Energy Inc. CVE stake.
How are other assets faring?
  • In Europe, the Stoxx Europe 600 SXXP was off 1.4%, while London’s FTSE 100
    UKX,
    -0.67%

    shed 0.8%.
  • The 10-year Treasury note yield TMUBMUSD10Y fell 2.5 basis points to 1.581%.
  • The greenback was stronger, trading up 0.4% based on the ICE U.S. Dollar Index DXY.
  • Gold futures GC00 were down 0.6% near $1,781.70 an ounce on Comex. U.S. crude futures CL.1 traded 1.5% higher at $65.46 a barrel on the New York Mercantile Exchange.
  • In Asian trade, Hong Kong’s Hang Seng Index HSI rose 0.7%. Bourses in Shanghai and Tokyo were closed.

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