Nasdaq makes its way into positive territory as Dow’s gain nears 350 points

U.S. stocks closed lower Wednesday, giving up earlier gains, even as investors focused on rebounding oil prices, some slippage in benchmark Treasury yields, and a brighter outlook for the economy.

Investors also tuned into a second day of testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen in which they reiterated expectations for a rebounding economy, but with lasting labor market challenges.

How did stock benchmarks perform?
  • The Dow Jones Industrial Average DJIA, -0.01% closed 3 points lower, but virtually unchanged at 32,420.06, after tumbling roughly 370 points from the session high.
  • The S&P 500 index SPX, -0.55% fell 21.38 points, or 0.6%, ending at 3,889.14.
  • The Nasdaq Composite COMP, -2.01% shed 265.81 points to finish at 12,961.89, a decline of 2%.
  • The small-cap Russell 2000 RUT, -2.35% shed 51.42 points, or 2.4%, ending at 2,134.27.

On Tuesday, the Dow fell 308.05 points, or 0.9%, to close at 32,423.15, to mark its worst daily loss since March 4, according to FactSet data. The S&P 500 declined 30.07 points, or 0.8%, finishing at 3,910.52, while the Nasdaq Composite Index fell 149.85 points, or 1.1%, to end at 13,227.70.

What drove the market?

U.S. stock gains faded in afternoon trade, leaving the Dow in negative territory in the session’s final moments as it joined the S&P 500 and Nasdaq Composite in a second straight day of losses.

“The market has been a little stalled out for the past week or so,” Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research, told MarketWatch.

“We are kind of directionless,” he said, but added that the closely watch Cboe Volatility Index VIX VIX, +4.43%, or “fear gauge,” rose around noon and closed 4.4% higher.

Earlier in trade, equities were mostly higher as oil prices rebounded from a sharp rout in the prior session and the climb in benchmark Treasury yields took a breather after recently reaching one-year highs.

“I think the overall market is being helped by the stabilization of interest rates and the rebound in oil and, frankly, by no surprises coming from Powell or Yellen,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, told MarketWatch.

Federal Reserve Chair Powell and Treasury Secretary Yellen on Wednesday reiterated key points to the Senate from Tuesday’s House testimony, namely that the economy should be poised for a strong rebound as more of the U.S. population gets vaccinated, but that the labor market’s return to health will take longer.

Read: Powell and Yellen’s game plan is evocative of the World War II playbook. Here’s what happened then.

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Investors remained concerned about Europe’s recent struggles with limiting the spread of coronavirus. Germany on Wednesday reversed plans for a stricter lockdowns over the Easter holiday, but worries remain about a potentially slower economic recovery for the region, even as fresh economic data have provided a bright spot.

Business activity in the eurozone unexpectedly grew in March, a preliminary survey showed. IHS Markit’s “flash” composite purchasing managers index, bounced to 52.5 this month, compared with 48.8 in February, rising above the 50 mark, which is seen as the dividing line between contraction and growth.

A flare up in the pandemic in the European Union is expected to compel the EU to draft emergency legislation that would allow it to control exports of COVID-19 vaccines.

In the U.S., Grohowski said he still expects a more challenging period for financial markets this year because the region could be forced to “grapple with potentially too much of a good thing,” in terms of trillions worth of fiscal and monetary stimulus designed to aid the U.S. economic recovery, which could also spark higher inflation and increase borrowing costs from recent lows.

“We have been warning investors that returns this year are likely going to be more of a challenge,” Grohowski said.

Even so, some equity bulls see a retreat in yields of benchmark U.S. Treasurys as paving a way for stocks to see fresh gains. Worries about the rise in yields have receded recently, with the 10-year Treasury note TMUBMUSD10Y, 1.631% at 1.613%, compared with 1.729% last Friday.

“I think under the hood at the Fed there’s more concern about inflation than they’re letting on, and I think the bond market is picking up on that,” said Donald Calcagni, chief investment officer with Mercer Advisors. “The bond market doesn’t need the Fed’s permission to raise rates, as we’ve seen.”

Calcagni thinks there’s a “tug-of-war” in the market between growth and value sectors. “We’re seeing rockiness now because we’re in the early stages of rotation,” he told MarketWatch. “Momentum takes time to shift and there’s friction as you rotate. Still, as the economy starts to open, value names should be the clear winners.”

In U.S. economic reports, durable-goods orders slid 1.1% in February, marking the first decline in 10 months. Economists surveyed by MarketWatch had forecast a 0.4% increase.

However, overall the U.S. economy grew faster in early March as the weather improved, governments loosened coronavirus restrictions and massive federal stimulus was injected into the economy, a new survey showed. Service-oriented businesses such as restaurants, resorts, airlines and hotels posted the steepest increase in business in almost three years, according to economic research firm IHS Markit. The firm’s “flash” service index climbed to an 80-month high of 60 from 59.8 in February.

Which stocks were in focus?
How did other assets trade?
  • The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, 1.631%  was about 2.4 basis points lower at 1.613%, down most days this week. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, -0.00%,  a measure of the currency against a basket of six major rivals, rose 0.2%.
  • Oil futures gained nearly 6%, in part thanks to the cargo ship mishap in the Suez Canal, with the U.S. benchmark CL.1, -1.90%  adding $3.42 to settle at $61.18 a barrel on the New York Mercantile Exchange.
  • Gold futures notched its first gain in 3 sessions. The April contract GCJ21, +0.16%  rose 0.5%, settling at $1,733.20 an ounce.
  • In Europe, the Stoxx 600 index SXXP, +0.02%  closed fractionally higher, while London’s FTSE 100 UKX, +0.20% added 0.2%.
  • In Asia, the Shanghai Composite SHCOMP, -0.01%  fell 1.3%, Hong Kong’s Hang Seng Index HSI, -0.09%  tumbled 2% and Japan’s Nikkei 225 NIK, +1.07% dropped 2%.

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