Market Snapshot: Dow, S&P 500 and Nasdaq Composite turn higher in volatile trade

U.S. stock benchmarks traded with slight gains Wednesday afternoon, possibly helping to pull the Nasdaq Composite away from its first close in correction territory since March, despite a backdrop of sharply higher bond yields and elevated inflation.

Banks stocks remained in the spotlight, with Morgan Stanley and Bank of America reporting quarterly results.

How are stock indexes trading?

The S&P 500 index SPX, +0.38% was up 11 points, or 0.3%, to 4,589, led by declines in consumer discretionary SP500.25, -0.25% and financials SP500.40, -0.72%.
The Dow Jones Industrial Average DJIA, +0.20% rose 37 points, or 0.1%, to 35,408, with declines in Caterpillar Inc. CAT, -2.40%, Boeing Co. BA, -1.74%, American Express Co. AXP, -1.94%, and Goldman Sachs Group Inc. GS, -1.04%, weighing on the blue-chip index.
The Nasdaq Composite Index COMP, +0.52% edged up 0.5%, or 67 points higher, to 14,571, trading below its correction level at 14,451.69. The technology-laden index hasn’t closed in correction since March 8, 2021.

On Tuesday, stocks fell sharply, with the Nasdaq Composite tumbling 2.6% to finish below its 200-day moving average.

What’s driving markets?

Markets were pushing modestly higher Wednesday afternoon in volatile trade, a potential sign of the new “normal” for equities, as the Federal Reserve looks to tighten financial conditions and tamp down inflation.

“I don’t think it’s going to be a short-lived bout of volatility,” said Matt Peron, Janus Henderson’s director of research, in a phone interview. “There’s a lot policy normalization that has to happen. There’s a lot of changes in investors’ thinking that needs to happen, and those typically take time.”

While Peron said he’s “constructive on the long-term” for stocks, he also expects the next three to six months to be choppy as the Fed looks to rein in easy monetary conditions unleashed during the pandemic.

Surging Treasury yields have weighed on the market’s bullishness, particularly hitting yield-sensitive technology and other growth equities hard. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.830% on Wednesday was at around 1.84%, pulling back somewhat, but near levels not seen since early 2020.

Read: Stock-market warning signal: Here’s what surging bond yields say about S&P 500 returns

The yield on the 2-year Treasury note  TMUBMUSD02Y, 1.018%, more sensitive to Federal Reserve policy expectations, fell 3 basis points to 1.01%, after toughing the highest level since February 2020.

“There is concern that…the Fed is not easing into monetary policy normalization because it is so far behind the curve,” Invesco’s chief global market strategist, Kristina Hooper, told MarketWatch.

But she also sees inflation, which the Fed now plans to fight, as weighing on the stock market. “In a number of the earnings calls, we are hearing about expenses going up…we’re hearing about compensation going up,” Hooper said, noting that wage inflation tends to be longer-lived.

The Fed is scheduled to meet next Tuesday and Wednesday, though many think January will be too soon to pencil in the first interest-rate hike. But “there’s a very good chance that policy makers will indicate a hike is on the way when the QE program draws to a close in two months time,” said Matthew Ryan, senior market analyst at Ebury, in a note.

In U.S. economic reports, home builders started construction on homes at a seasonally adjusted annual rate of roughly 1.7 million in December, representing a 1% increase from the previous month, the U.S. Census Bureau reported Wednesday. Compared with December 2020, housing starts were up 2.5%.

Meanwhile, permitting for new homes occurred at a seasonally adjusted annual rate of 1.87 million, up 9% from November and 6.5% from a year ago.

Separately, crude oil prices CL00, +1.56% BRN00, +1.31% were climbing, after reaching levels not seen since 2014 on Tuesday. Oil extended gains late in that session amid reports that an explosion disrupted flow through the Kirkuk-Ceyhan pipeline between Iraq and Turkey.

On Wednesday, the International Energy Agency predicted global oil demand will exceed pre-pandemic levels this year due to increased vaccination against COVID-19 and milder recent waves of the virus.

West Texas Intermediate crude for February delivery CLG22, +2.04% was last up 2% to around $87 a barrel.

Read: RBC analyst says was wrong on Exxon as oil giant upgraded to sector perform

Which companies are in focus?

Investors were poring over a report from Bank of America BAC, +0.98% after the money center bank reported fourth-quarter profit that rose above expectations. Shares were up 0.5%.
Morgan Stanley MS shares were in focus after the bank beat profit estimates for the fourth quarter amid strong performances at its investment banking and wealth management divisions. Its stock rose 2%.
Procter & Gamble Co. PG shares were in up over 4.2% Wednesday after the consumer products company reported fiscal second quarter results that beat expectations and narrowed its full-year sales guidance.
UnitedHealth Group Inc. UNH reported fourth-quarter profit and revenue that rose above expectations and affirmed its full-year outlook. Its stock was up 1.4%.
U.S. listed shares of ASML Holding ASML, +0.51% were up 0.1% after the Dutch semiconductor-equipment maker reported better-than-forecast fourth-quarter earnings, predicted a 20% rise in sales this year and doubled its dividend to €5.50.
SoFi Technologies Inc. shares SOFI, +17.58% climbed by around 17.5% after the financial-technology group said that it won regulatory approval to become a bank holding company.
Shares of Zogenix Inc. ZGNX, +66.69% surged 67% in premarket trading after the biopharmaceutical company agreed to a deal to be acquired by Belgian peer UCB in a deal valued up to $1.9 billion.

How are other assets faring?

The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six rivals, fell 0.2%.
Gold futures GC00 rose 1.6% higher to trade at $1,841 an ounce.
The Stoxx Europe 600 SXXP closed 0.2% higher, but well off its high, while London’s FTSE 100 UKX, a commodity-heavy index, advanced 0.4%.
The Shanghai Composite SHCOMP declined 0.3%, while the Hang Seng Index HSI rose less than 0.1% in Hong Kong and the Nikkei 225 NIK declined 2.8%.

Barbara Kollmeyer contributed reporting

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