Stocks were mostly lower on Tuesday, with technology stocks leading the way lower as investors digested commentary from Treasury Secretary Janet Yellen around the possibility of higher interest rates.
The S&P 500 pared losses after dropping more than 1% at session lows, with the index trading off its all-time highs. The Dow turned slightly positive by market close. The Nasdaq underperformed, dropping 1.9% in its worst session since March as technology and growth shares added to losses.
Stocks took a leg lower after Yellen said Tuesday morning she thought interest rates in the U.S. might need to rise in order to prevent an economic overheating during the recovery out of the pandemic. Rising rates would weigh on valuations of growth companies, and many investors have been concerned an easing of monetary policy could crimp the stock market's recent run-up to record highs.
"It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economy," she said in taped comments at a virtual event by The Atlantic. "It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive. I think our economy will grow faster because of them."
Investors on Tuesday will receive quarterly reports from companies including Lyft (LYFT) and Virgin Galactic Holdings (SPCE). Overall, corporate results so far have handily exceeded estimates, with 85% of the S&P 500 companies that reported having topped expectations by more than 22.1% in aggregate, according to an analysis from Credit Suisse analyst Jonathan Golub.
These strong results, however, have been met with just a shrug by Wall Street, with many companies not seeing their stocks pop even after posting estimates-topping results. Many pundit chalked this up to the already-elevated expectations heading into earnings season, with investors primed to see a rebound in corporate profits during the post-pandemic economic recovery.
"The numbers were good but Wall Street response was neutral at best. When the best earnings growth since 2010 spawns a yawn it's pretty clear that perfection is priced in," Hilary Kramer, chief investment officer for Kramer Capital Research, wrote in an email Monday. "While there's no seasonal sell signal flashing, there's no immediate reason to buy either. This is a great opportunity to review your positions, make any adjustments and then retreat to the sidelines for the next few months."
Stocks are also entering a seasonally more stagnant period for gains. And with earnings reports winding down, investors over the next couple months will be left to react to developments around monetary policy and possible tax changes rather than on specific company fundamentals, Joe Fahmy, managing director of Zor Capital, noted Monday.
"I'm still bullish longer term but just cautious over the short term," Fahmy told Yahoo Finance. "I'm thinking one of two things happens from here: Either growth stocks stabilize and lift the markets higher, or the weakness beneath the surface brings the market lower. And I'm leaning toward the latter for several reasons, the main one is ... what happened over the last couple of weeks. So many mega cap tech stocks reported remarkable earnings. But as I like to say it's not the news, it's the market's reaction to the news. And they were sold off, which was telling me that the big institutions are selling into strength right now."
Others also suggested markets might be set to churn in the near-term.
"I think what we're looking for is potentially something more like March where we chopped around a bit and digested February's moves. We're going to chop around a bit and digest April's moves," Bill Baruch, Blue Line Futures president, told Yahoo Finance on Monday. "4,186 is a big level for me in the S&P 500, and it's been rather sticky. Yes we've been above it, we've also been a little bit below it since achieving it, and I think it's a very sticky level and we're going to see it play back and forth."
4:03 p.m. ET: Nasdaq drops 1.9% for worst session since March as tech stocks sell off
Here were the main moves in markets as of 4:03 p.m. ET:
S&P 500 (^GSPC): -27.90 (-0.67%) to 4,164.76
Dow (^DJI): +20.26 (+0.06%) to 34,133.49
Nasdaq (^IXIC): -261.62 (-1.88%) to 13,633.50
Crude (CL=F): +$1.22 (+1.89%) to $65.71 a barrel
Gold (GC=F): -$14.70 (-0.82%) to $1,777.10 per ounce
10-year Treasury (^TNX): -1.5 bps to yield 1.5920%
1:03 p.m. ET: Stocks extend declines, Nasdaq drops more than 2%
The three major indexes extended declines in afternoon trading, with the Nasdaq heading for its worst session since March.
Here's where markets were trading Tuesday afternoon:
S&P 500 (^GSPC): -51.3 (-1.22%) to 4,141.36
Dow (^DJI): -128.67 (-0.38%) to 33,984.56
Nasdaq (^IXIC): -363.59 (-2.62%) to 13,533.94
Crude (CL=F): +$1.09 (+1.69%) to $65.58 a barrel
Gold (GC=F): -$16.80 (-0.94%) to $1,775.00 per ounce
10-year Treasury (^TNX): -2.1 bps to yield 1.585%
10:50 a.m. ET: Factory orders jump in March after February dip
Factory orders in the U.S. jumped in March after dropping in February, in another sign of surging demand for manufactured goods during the economic recovery.
Factory orders rose 1.1% in March over February after a 0.5% drop the month prior, the Commerce Department said Tuesday. This was still slightly short of estimates for a 1.3% gain, however, according to Bloomberg consensus data. Excluding transportation orders, factory orders rose by an even better 1.7%, also rebounding after a 0.2% dip in February.
10:02 a.m. ET: U.S. trade deficit hits record high as imports surge during recovery
The U.S. trade deficit widened to a record high in March as consumer demand outpaced supply, driving a surge in imports that far exceeded exports.
The trade deficit yawned to $74.4 billion in March, after coming in at a deficit of $70.5 billion in February, the Commerce Department said Tuesday. Imports hit a record high of $274.5 billion in March, jumping 6.3% over the previous month. Imports of goods were the key driver, rising 7.0% to an all-time high of $234.4 billion as apparel, toys, semiconductors and telecommunications equipment demand surged. Exports, meanwhile, rose 6.6% to $200 billion, also led by goods exports with a rise of 8.9% to nearly $143 billion.
9:31 a.m. ET: Stocks open lower as technology stocks add to losses
Growth and technology stocks weighed on markets Tuesday morning, with the Nasdaq sharply underperforming against the S&P 500 and Dow. The move lower in growth names came even as Treasury yields declined, with the benchmark 10-year yield dipping back below 1.59%.
The S&P 500 dropped 0.5% after market open, while the Dow shed fewer than 100 points, or 0.2%. The Nasdaq dropped by 0.9%.
7:15 a.m. ET Tuesday: Stock futures trade mixed, Nasdaq futures extend losses
Here's where markets were trading ahead of the opening bell:
S&P 500 futures (ES=F): 4,182.50, down 3.25 points or 0.08%
Dow futures (YM=F): 34,028.00, up 20 point or 0.06%
Nasdaq futures (NQ=F): 13,746.00, down 44 points or 0.32%
Crude (CL=F): +$1.22 (+1.89%) to $65.71 a barrel
Gold (GC=F): -$8.40 (-0.47%) to $1,783.40 per ounce
10-year Treasury (^TNX): +1.1 bps to yield 1.617%
6:15 p.m. ET: ET Monday Stock futures trade flat
Here's where markets were trading as the overnight session kicked off:
S&P 500 futures (ES=F): 4,184.00, down 1.75 points or 0.04%
Dow futures (YM=F): 34,009.00, up 1 point or unchanged
Nasdaq futures (NQ=F): 13,781.5, down 8.5 points or 0.06%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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