Dow ends at new record above 32,000 as investors eye fiscal stimulus, sell technology stocks

The Dow closed above 32,000 for the first time Wednesday, but technology stocks lagged, as investors bet on further gains for parts of the economy that could be bolstered by another massive injection of cash from Congress that’s due to be signed into law on Friday by President Joe Biden.

What did major indexes do?
  • The Dow Jones Industrial Average

    rose 464.28 points, or 1.5%, to close at a record 32,297.02, after hitting a new 32,389.50 intraday all-time high.

  • The S&P 500

    gained 23.37 points, or 0.6%, ending at 3,898.81.

  • The Nasdaq Composite

    edged 4.99 points lower, less than 0.1%, to finish at 13,068.83.

On Tuesday, the tech-heavy Nasdaq Composite jumped 464.66 points, or 3.7%, for its biggest one-day percentage gain since Nov. 4, according to Dow Jones Market Data. The bounce came a day after the index fell into correction territory, a pullback of 10% from a recent peak. The Dow rose 30.30 points, or 0.1%, while the S&P 500 logged a 1.4% gain.

What drove the market?

Investors were buying energy and financial stocks on Wednesday, but selling technology shares, as Congress passed a $1.9 trillion spending package slated to be signed by Biden on Friday. They also were keeping an eye on inflation data, which thus far has remained in check.

“In the face of the stimulus, for sure the short-term market response looks logical, and that is a rotation into the broader market,” said Donald Townswick, director of equity strategies at Conning.

Growth within lagging sectors could be a boon to the economy but over the longer term, investors also worry about whether trillions worth of rescue dollars sloshing through the economy might cause prices of goods and services to surge, potentially putting a damper on the recovery.

“We’ve yet to find a level of spending, so far, that’s inflationary,” Townswick told MarketWatch. “There’s always the risk that we might cross over that threshold. But historically, a small amount of inflation haven’t been bad for the equity market, especially if the economy is strong and companies can pass along some of the costs of inflation.”

The U.S. February consumer-price index showed inflation rising modestly, in line with expectations. Inflation rose 0.4% for the month, but with food and energy stripped out, the gain was 0.1%. Headline CPI picked up to 1.7% from 1.4% on an annual basis while the core 12-month increase dipped to 1.3% from 1.4%.

U.S. Treasury yields retreated slightly Wednesday, but not enough to end a rotation out of shares of highflying technology stocks and other growth shares and into more cyclically sensitive, value-oriented equities.

The yield on the 10-year Treasury note

was down 2.5 basis points at 1.520%, after an auction of $38 billion of benchmark 10-year notes went off without any major surprises. Debt and equity investors have been on high alert for any further, sudden spike in government bond yields. Yields have climbed for five straight weeks, along with inflation expectations.

“The rotation is not done,” said Tom Mantione, managing director with UBS Private Wealth Management. “Typically a move in the 10-year from a low base has been a positive for markets. The problem this time is it was so quick.”

“Lots of people feel like it’s a zero sum game — I own the reflation trade or I own tech,” Mantione said in an interview. “It would be wise for longer term investors to understand that there could be potential opportunities at the extremes to take advantage of this volatility. Take a day like Monday to buy stocks focused on disruptive tech like 5G, robotics, clean tech. Take a day like Tuesday to buy financials, energy, materials.”

Yields were driven higher in recent weeks as investors looked for U.S. economic growth to surge and for inflation to accelerate, at least in the near term. The OECD said this week that President Biden’s coronavirus aid package will add about one percentage point to global economic growth in 2021 and America’s growth rate was revised up to 6.5% from 3.2%.

“As we have pointed out many times in the past, the U.S. economy is driven by consumer spending,” Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a note Wednesday. “In fact, nearly 70% of domestic growth comes from consumers opening their wallets and paying for goods and services. In order for this magnitude of economic support to occur, we need confident consumers with jobs and money to spend on discretionary goods and services.”

The White House said it expected to sign the $1.9 trillion COVID-19 relief bill on Friday, which comes on top of six past rounds of aid spending.

An update on the federal budget on Wednesday showed a widening deficit of $311 billion in February from a year prior, a bigger gap than the expected $255 billion deficit.

Need to Know: The stimulus money isn’t going to be spent, Bank of America says, so here are the investment moves to make

Also see: The economy is ready to rip after stimulus and faster coronavirus vaccinations

Which companies were in focus?
  • Shares of videogame retailer GameStop Corp.GME rose 7.3% after volatile trade and a Tuesday rally took the meme-stock favorite of traders on Reddit’s WallStreetBets forum to its highest finish since the end of January.

  • General Electric Co.

    shares fell 5.4% after it agreed to combine its aircraft-leasing business with Ireland’s AerCap Holdings NV as part a deal valued at more than $30 billion. Separately, GE said its board of directors would recommend approval of a 1-for-8 reverse stock split, given the industrial conglomerate’s “significant transformation” over the past several years.

  • Shares of Tupperware Brands Corp.

    slid 19.9% after the food storage products company swung to a fourth-quarter profit that was well short of expectations, while saying efforts to “fix” its core business were starting to take hold.

  • Roblox Corp. shares soared 54.4% to start trade on the New York Stock Exchange, after the tween-centric game platform went public through a direct listing on Wednesday. It trades under the ticker

  • Shares of MongoDB Inc.

    slipped 5.6% Wednesday after the database company delivered results late Tuesday that topped Wall Street estimates while its outlook was much more muted.

  • Qualtrics International Inc.

    shares rose 0.9% after the experience-management software company reported fiscal fourth-quarter results that topped analysts’ forecasts.

What did other markets do?
  • The ICE U.S. Dollar Index
     a measure of the currency against a basket of six major rivals, was down 0.2% near 91.80 after hitting a more-than-three-month high on Monday.

  • Oil futures closed higher after a report showing a large rise in U.S. crude inventories and a large drop in stocks of petroleum products, with the U.S. benchmark

    up 0.7% to settle at $64.44.

  • Gold futures

    closed 0.3% higher at $1,721.80 an ounce.

  • The pan-European Stoxx 600

    booked a gain of 0.4% and London’s FTSE 100

     ticked down 0.1%.

  • In Asia, the Shanghai Composite SHCOMP slipped 0.1%, while Hong Kong’s Hang Seng Index HSI rose 0.5% and Japan’s Nikkei 225 NIK was virtually unchanged at 29,036.56.

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