Shares shut flat, Goldman Sachs leads banks greater
Stocks closed along the flatline on Tuesday as traders weighed in higher interest rates, potential incentives and political turmoil.
The Dow Jones Industrial Average rose 60 points, or 0.2%, to 31,068.69. The Nasdaq Composite ended the day up 0.3% at 13,072.43. The S&P 500 rose slightly to 3,801.19. Losses from major tech companies kept moves in check on Tuesday.
Goldman Sachs stocks rose 2.9% to lead the Dow higher. JPMorgan Chase and Bank of America were up 1.6% and 1.8%, respectively. Charles Schwab gained 1.6% to reach an all-time high.
The benchmark 10-year bond yield was briefly at 1.187%, its highest level since March before falling back to 1.13%. The 30-year bond yield rose to 1.88% and also hit a high from March 2020.
"The market has changed in the short term," wrote Gregory Faranello, director of US rates at AmeriVet Securities. "The mindset of markets has changed as the democratic wave is being digested in the short term. The focus is now on growth and inflation, and possibly a combination of both."
Interest rates have risen since the Democrats secured a majority in both the House and Senate, opening the door to additional fiscal stimulus. Last week, President-elect Joe Biden promised a stimulus package that will be in "trillions of dollars".
However, higher interest rates could make it more expensive for tech companies – which have been market leaders throughout the pandemic – to grow their business further by issuing additional debt.
Facebook fell 2.2% and Alphabet 1.1%. Microsoft and Apple also lost more than 1%.
"When you consider that the 10-year phase is gradually working up below 1% for much of the past year, it raises questions about valuations, especially when it comes to technology," said Art Hogan, chief marketing strategist at National Securities.
The forward price-to-earnings ratio of the S&P 500 was 22.7, close to its highest level since 2000. DoubleLine Capital CEO Jeffrey Gundlach pointed out Monday that stock valuations are high by historical standards and only through US stimulus measures will be propped up by the Federal Reserve.
"We feared that stretched rating multipliers could be stretched more, creating the conditions for a breakdown," wrote Ed Yardeni, CIO of Yardeni Research. "On the flip side, we're relieved that corporate earnings, along with the US economy, continue to rebound from the unprecedented two-month lockdown recession in March and April last year."
The stocks had a losing session, with major averages closing lower on Monday.
Last week, major averages hit all-time highs as Wall Street shook off the turmoil in the U.S. Capitol that led House Democrats to launch an impeachment article on Monday against President Donald Trump for inciting the attack.
Since then, several social media companies have suspended or banned Trump from their platforms. In some cases this has put pressure on their holdings. Twitter fell 2.4% on Tuesday and is down 8.6% this week. So far, Facebook has lost 6.2% week.
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