U.S. stocks rose again on Tuesday as Wall Street appeared to find its footing after a rocky start to the new year.
The tech-heavy Nasdaq Composite gained 1.2%, building on an afternoon rally from the previous session that snapped a four-day losing streak. The S&P 500 rose 0.6%, while the Dow Jones Industrial Average added 75 points, or 0.2%.
Stocks have been volatile to start the year, as rising interest rates have put pressure on equities. However, interest rates cooled on Tuesday, with the 10-year Treasury yield slipping to 1.76%.
“The market is grappling with a broad-based rotation and the potential for a hastened pace of rate hikes, which is leading to volatility,” Greg Marcus, managing director at UBS Private Wealth Management, said in a note.
Large tech stocks helped support the broader market, with Amazon rising 2% and shares of Apple and Nvidia gaining roughly 2% each. Other notable gainers included Illumina, which rose 10% after the genomic sequencing company issued a 2022 revenue outlook that was ahead of consensus.
Shares of IBM, which was downgraded by UBS, fell 3% and weighed on the Dow.
Fed Chair Jerome Powell testified before a Senate committee on Tuesday as part of his re-confirmation process. Powell said that he expected a normalized supply chain to help ease inflation pressures in 2022 but said the Fed would not be afraid to hike rates further than projected if inflation remains high.
“If we have to raise interest rates more over time, we will. We will use our tools to get inflation back,” Powell said.
Comments from other Fed officials on Tuesday also pointed toward an aggressive stance to fight inflation.
However, stocks and bonds both moved higher during Powell’s testimony as he did not announce an accelerated change in policy from what the central bank had already signaled.
On Monday, the Nasdaq turned slightly green into the close after a day of continued declines from the previous week’s sell-off, sparked by a rise in bond yields and worries about upcoming actions by the Federal Reserve. It closed 0.05% higher and erased a 2.7% loss. Meanwhile, the Dow after being down more than 500 points ultimately lost 162 points, or 0.4%, while the S&P 500 slid 0.1%.
On Monday, JPMorgan’s Marko Kolanovic said markets can withstand higher yields, as well as omicron, and that investors should buy the dip in the tech stocks.
“The pullback in risk assets in reaction to the Fed minutes is arguably overdone,” he said in a note. “Policy tightening is likely to be gradual and at a pace that risk assets should be able to handle, and is occurring in an environment of strong cyclical recovery.”
Jim Paulsen, chief investment strategist at the Leuthold Group, said that while the stock market is likely to encounter a correction this year – and last week’s action could perhaps have been the start of one – it will be met by strong company fundamentals.
“Historically, the stock market has suffered some nasty ‘temper tantrums,’ and numerous rate hikes eventually led to recessionary bear markets,” Paulsen said in a note Monday evening. “However, the current focus among investors may be misplaced. The stock market’s response may have less to do with the timing and number of rate hikes than it does with the ‘direction’ of real earnings.”
Earnings season will be in full swing by the end of this week with the big banks set to report starting Friday. Grocery chain Albertson’s reported results that beat expectations on the top and bottom lines on Tuesday morning.
