Stocks rose slightly on Tuesday as traders weighed rising interest rates against a potential economic recovery from the coronavirus pandemic.
The Dow Jones Industrial Average climbed 53 points, or 0.2%. The S&P 500 was 0.1% higher, and the Nasdaq Composite gained 0.3%.
Bank stocks contributed to Tuesday’s gains. Goldman Sachs and JPMorgan Chase were both up at least 2%, while Bank of America traded 1.6% higher.
However, the move higher in stocks was capped by a decline in tech names. Facebook, Netflix and Alphabet all fell more than 2%. Microsoft and Apple traded lower by 1.7% and 1.1%, respectively. Amazon lost 0.6%. Those losses for Big Tech follow a rise in U.S. interest rates.
The benchmark 10-year note yield rose to 1.146%, and hit its highest level since March. The 30-year bond rate climbed to 1.88%.
“There has been a short-term tone shift in the market,” wrote Gregory Faranello, head of U.S. rates at AmeriVet Securities. “Markets have shifted in mindset as the Democratic ripple is digested short-term. The focus is now turning to growth and inflation and perhaps a combination of both.”
Rates have been on the rise since Democrats secured majorities in both the House and Senate, opening up the door for additional fiscal stimulus. Last week, President-elect Joe Biden promised an economic stimulus rollout, which he said will be “in the trillions of dollars.”
However, higher rates could make it more expensive for tech companies — which have been the market leaders throughout the pandemic — to keep growing their businesses through additional debt issuance.
“When you think about the 10-year gradually working higher after spending most of last year below 1%, it raises questions about valuations, especially as it pertains to technology,” said Art Hogan, chief market strategist at National Securities.
The S&P 500’s forward price-to-earnings ratio was at 22.7, near its highest level since 2000. DoubleLine Capital CEO Jeffrey Gundlach pointed out on Monday that stock valuations are high relative to historical standards, and are being underpinned solely by stimulus measures from the Federal Reserve.
“We’ve been concerned that stretched valuation multiples could get more stretched, setting the stage for a meltdown,” wrote Ed Yardeni, CIO of Yardeni Research. “On the other hand, we are relieved to see corporate earnings continue to recover along with the US economy from the unprecedented two-month lockdown recession during March and April of last year.”
Stocks were coming off a losing session, with the major averages closing lower on Monday.
Last week, the major averages rallied to all-time highs as Wall Street shrugged off riots at the U.S. Capitol that led to the House Democrats introducing an article of impeachment 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 stocks. Twitter fell 2.6% on Tuesday, and is down 8.8% this week. Facebook has lost 6% week to date.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
