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Market Snapshot: Nasdaq leads stocks higher as investors take Powell testimony in stride

U.S. stocks were trading higher Tuesday afternoon, with tech-related shares extending a bounce from the previous session, as investors appeared to take testimony by Federal Reserve Chairman Jerome Powell in stride as they looked for clues to the pace of future rate increases and other plans for tightening monetary policy in 2022.

What are major indexes doing?
  • The Dow Jones Industrial Average
    DJIA
    rose almost 108 points, or 0.3%, to 36,177.

  • The S&P 500
    SPX
    advanced 30 points, or 0.7%, to about 4,701.

  • The Nasdaq Composite
    COMP
    jumped almost185 points, or 1.2%, to 15,128.

On Monday, the Dow and S&P 500 ended lower, while the Nasdaq Composite closed fractionally higher. According to Dow Jones Markets Data, the Nasdaq’s reversal from a 2.7% slide earlier was the strongest intraday reversal since Feb. 28, 2020. The late-day reversal was driven by companies that had seen the worst year-to-date performance, according to Bespoke Investment Group.

What’s driving the market?

Stocks rose as investors digested Federal Reserve Chairman Jerome Powell testimony before the Senate Banking Committee in a hearing on his nomination to serve a second term.

Powell painted a picture of a soft landing for the economy as the Fed moves to remove emergency stimulus measures and begin raising interest rates, even as market participants increasingly expect the central bank to move much more aggressively than previously anticipated after inflation proved hotter and much more persistent than policy makers had predicted.

“It really is time for us to move away from those emergency policy settings to a more normal level. It really should not have negative effects on the labor market,” said Powell, who is widely expected to be confirmed by the Senate.

Read: Powell says Fed can cool inflation without damaging labor market

Investors also assessed speeches from regional Fed presidents and prepared for Wednesday’s inflation data.

Kansas City Fed President Esther George, said in a speech Tuesday that the central bank should speedily reduce its enormous $8.5 trillion pile of bondholdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.

Cleveland Fed President Loretta Mester said she would back a rate increase in March if the economic backdrop resembles current conditions. Mester said she sees the Fed raising rates three times in 2022. George and Mester are both 2022 voting members of the Fed’s policy-setting Federal Open Market Committee.

Key Words: ‘Tough sledding’ ahead for high-flying inflation trades, says investor who called ’87 stock-market crash

Tech and other so-called growth stocks — shares of companies whose revenue and earnings are expected to grow faster than average — have been hard hit as Treasury yields have risen in response to expectations the Fed will be much more aggressive than previously anticipated in raising rates in an effort to rein in well above-target inflation.

“The whole tech sector has been beaten up pretty good,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab, in a phone interview Tuesday. “There’s a pretty big trend of people moving out of growth assets into more value assets, which is something that is consistent with the concerns about higher interest rates.”

The minutes from the December FOMC meeting released last week showed the central bank considering multiple rate increases this year and reducing its nearly $9 trillion balance sheet, that is still growing as the previous quantitative easing program is wound down. Some Wall Street banks, including Goldman Sachs and Deutsche Bank, now look for the Fed to raise interest rates four times in 2022, versus the three hikes penciled in by Fed policy makers in what’s known as the dot-plot forecast.

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“The market is telling us that we’re going to get an interest rate hike in March,” said Frederick. That’s when Frederick also expects the Fed to start raising rates, which is sooner than he had been anticipating before it released the minutes of its December meeting, he said.

Read: 4 mistakes the Powell Fed made—from a former insider

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
ended Monday at the highest level since Jan. 17, 2020, pulling back slightly in Tuesday afternoon trading at about 1.75%. The 10-year yield has surged around 25 basis points this year.

“We would not be surprised if tech and large cap growth stocks stage comeback rallies here and there along the way, but ultimately we believe the rotation into value is the better trend in 2022,” said David Bahnsen, chief investment officer of The Bahnsen Group, a Newport, Calif.-based wealth management firm with $3.4 billion in assets under management.

“Our posture is that the broad market indices are vulnerable, and tech is the largest weightings in those broad market indices, but bottom-up selectivity still offers ample opportunities of value in this environment,” he said.

The S&P 500’s information technology sector
XX:SP500EW
was trading up about 1% Tuesday afternoon, but remained down 3.7% for the year, according to FactSet data, at last check. The energy sector
XX:SP500EW
was leading the index’s afternoon gains, trading around 3% higher.

Which companies are in focus?
  • Shares of American Airlines Group Inc.
    AAL
    rose 1.6% after the carrier updated its fourth-quarter guidance to reflect a performance that turned out not to be as bad as expected.

  • Life-sciences company Danaher Corp.
    DHR
    said it expects fourth-quarter core revenue growth to exceed its own guidance, boosted by better-than-expected results at all three of its operating segments. Shares were down 0.1%.

How are other assets trading?
  • The ICE U.S. Dollar Index
    DXY,
    a measure of the currency against a basket of six major rivals, was down 0.4%.

  • Oil futures jumped, with the U.S. benchmark
    CL00
    up 3.7%, while gold futures
    GC00
    rose 1.1%.

  • Bitcoin
    BTCUSD
    was up 2.8%.

  • The Stoxx Europe 600
    XX:SXXP
    closed 0.8% higher, while London’s FTSE 100
    UK:UKX
    gained 0.6%.

  • The Shanghai Composite
    CN:SHCOMP
    fell 0.7%, while the Hang Seng Index
    HK:HSI
    ended fractionally lower and Japan’s Nikkei 225
    JP:NIK
    lost 0.9%.

—Steve Goldstein contributed to this report.

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