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Dow down over 200 points as investors focus on testimony from Feds Powell – MarketWatch

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U.S. stocks turned higher Tuesday morning, with tech-related shares extending a bounce from the previous session, as investors appeared to take testimony by Federal Reserve Chairman Jerome Powell in stride as they looked for clues to the pace of future rate increases and other plans for tightening monetary policy in 2022.

What are major indexes doing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.21%
    edged up 17.91 points, or less than 0.1%, to 36,086.78.

  • The S&P 500
    SPX,
    +0.52%
    rose 15.88 points, or 0.3%, to 4,686.17.

  • The Nasdaq Composite
    COMP,
    +1.08%
    jumped 191.99 points, or 1.3%, to 15,134.82.

On Monday, the Dow and S&P 500 ended lower, while the Nasdaq Composite closed fractionally higher. According to Dow Jones Markets Data, the Nasdaq’s reversal from a 2.7% slide earlier was the strongest intraday reversal since Feb. 28, 2020. The late-day reversal was driven by companies that had seen the worst year-to-date performance, according to Bespoke Investment Group.

What’s driving the market?

Powell is testifying before the Senate Banking Committee in a hearing on his nomination to serve a second term as Fed chairman, as investors also assessed speeches from regional Fed presidents and prepared for Wednesday’s inflation data.

Read: 4 mistakes the Powell Fed made—from a former insider

Powell painted a picture of a soft landing for the economy as the Federal Reserve moves to remove emergency stimulus measures and begin raising interest rates, even as market participants increasingly expect the central bank to move much more aggressively than previously expected after inflation proved hotter and much more persistent than policy makers had predicted.

“It really is time for us to move away from those emergency policy settings to a more normal level. It really should not have negative effects on the labor market,” Powell said.

Read: Powell says Fed can cool inflation without damaging labor market

Powell is widely expected to be confirmed by the Senate.

Meanwhile, Kansas City Fed President Esther George, in a Tuesday speech, said the central bank should speedily reduce its enormous $8.5 trillion pile of bondholdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.

Cleveland Fed President Loretta Mester said she would back a rate increase in March if the economic backdrop resembles current conditions. Mester said she sees the Fed raising rates three times in 2022. George and Mester are both 2022 voting members of the Fed’s policy-setting Federal Open Market Committee.

Tech and other so-called growth stocks — shares of companies whose revenue and earnings are expected to grow faster than average — have been hard hit as Treasury yields have risen in response to expectations the Fed will be much more aggressive than previously anticipated in raising rates in an effort to rein in well above-target inflation.

The minutes from the December FOMC meeting released last week showed the central bank considering multiple rate increases this year and reducing its nearly $9 trillion balance sheet, that is still growing as the previous quantitative easing program is wound down. Some Wall Street banks, including Goldman Sachs and Deutsche Bank, now look for the Fed to raise interest rates four times in 2022, versus the three hikes penciled in by Fed policy makers in what’s known as the dot-plot forecast.

The yield on the 10-year Treasury
TMUBMUSD10Y,
1.767%
ended Monday at the highest level since Jan. 17, 2020, pulling back slightly Tuesday. The 10-year yield has surged more than 25 basis points this year.

“We would not be surprised if tech and large cap growth stocks stage comeback rallies here and there along the way, but ultimately we believe the rotation into value is the better trend in 2022,” said David Bahnsen, chief investment officer of The Bahnsen Group, a Newport, Calif.-based wealth management firm with $3.4 billion in assets under management.

“Our posture is that the broad market indices are vulnerable, and tech is the largest weightings in those broad market indices, but bottom-up selectivity still offers ample opportunities of value in this environment,” he said.

Which companies are in focus?
  • Shares of American Airlines Group Inc.
    AAL,
    +1.78%
    fell 1.5% after the carrier updated its fourth-quarter guidance to reflect a performance that turned out not to be as bad as expected.

  • Life-sciences company Danaher Corp.
    DHR,
    -0.14%
    said it expects fourth-quarter core revenue growth to exceed its own guidance, boosted by better-than-expected results at all three of its operating segments. Shares rose 0.6%.

How are other assets trading?