Dow Today – Tech leads rebound in stocks; bonds fluctuate

Stocks rebounded from a five-day slide after Jerome Powell reassured investors the Federal Reserve will tamp down inflation as the economy continues its rebound.

The S&P 500 pushed higher, while the Nasdaq 100 outperformed major benchmarks and bonds fluctuated. The Fed chief said the central bank won’t hesitate to act if needed to contain price pressures and help ensure full employment — though the mismatch between supply and demand that’s driven up prices was expected to abate. 

The drumbeat for the Fed to implement four quarter-point hikes this year is growing — and with the speed that markets have been moving, there’s a possibility that traders may soon look to protect themselves against the risk of even faster tightening. Cleveland Fed President Loretta Mester and her Atlanta counterpart Raphael Bostic backed raising rates as soon as March, while Kansas City Fed chief Esther George said she favors reducing the Fed’s balance sheet early on during the process of normalizing policy.

“Volatility is likely to return to Wall Street in 2022,” said Paul Nolte, portfolio manager at Kingsview Investment Management. “Interest rates will likely be the deciding factor as all eyes will be on the Fed. How many interest rate increases and when will the Fed decide enough is enough will be investor’s focus in the coming weeks.”

In corporate news, CVS Health Corp. said its full-year adjusted earnings for 2021 would be in a higher range than currently expected by analysts. American Airlines Group Inc. will report higher revenue in the fourth quarter than analysts expected as the carrier’s main operations escaped the worst of winter holiday cancellations. International Business Machines Corp. was downgraded to sell at UBS.

Unfazed by the stock market’s bumpy start to the year, strategists from Goldman Sachs Group Inc. to UBS Global Wealth Management reiterated their bullish calls on bets that equities can weather higher rates and rising bond yields.

“The selloff in some long-duration, high-quality names might be overdone soon,” wrote Goldman strategists led by Cecilia Mariotti. With real yields not expected to move much higher, “valuations are unlikely to become a binding constraint for equities.”

Meantime, Goldman cut its forecast for China’s economic growth this year to 4.3 per cent due to the increased difficulty of containing the more-contagious omicron coronavirus variant. The virus strain represents a “west-to-east tidal wave” that may infect more than half of Europe’s population within the next six to eight weeks, according to the World Health Organization. 

Here are some key events this week:

• EIA crude oil inventory report on Wednesday.
• China PPI, CPI on Wednesday.
• U.S. CPI, Fed Beige Book on Wednesday.
• U.S. initial jobless claims, PPI on Thursday.
• U.S. Senate Banking Committee hearing for Lael Brainard, nominated as Fed vice-chair on Thursday.
• Richmond Fed President Thomas Barkin, Philadelphia Fed President Patrick Harker,
• Chicago Fed President Charles Evans speak on Thursday.
• Bank of Korea policy decision and briefing on Friday.
• Wells Fargo, Citigroup, JPMorgan due to report earnings on Friday.
• U.S. business inventories, industrial production, University of Michigan consumer sentiment, retail sales on Friday.
• New York Fed President John Williams speaks Friday.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2 per cent as of 11:31 a.m. New York time
• The Nasdaq 100 rose 0.8 per cent
• The Dow Jones Industrial Average fell 0.1 per cent
• The Stoxx Europe 600 rose 0.8 per cent
• The MSCI World index rose 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro rose 0.3 per cent to US$1.1365
• The British pound rose 0.3 per cent to US$1.3621
• The Japanese yen fell 0.1 per cent to 115.37 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 1.76 per cent
• Germany’s 10-year yield was little changed at -0.03 per cent
• Britain’s 10-year yield declined three basis points to 1.16 per cent

Commodities

• West Texas Intermediate crude rose 3.5 per cent to US$81 a barrel
• Gold futures rose 0.9 per cent to US$1,815.40 an ounce