Stocks pare drop but hold lower as Fed’s Powell calls economic recovery ‘far from complete’

Stocks remained lower Tuesday, with tech shares leading the way down, as investors monitored a sharp rise in bond yields and testimony by Federal Reserve Chairman Jerome Powell, who warned that the U.S. economic recovery remains uneven and far from complete.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    fell 125 points, or 0.4%, to 31,390.

  • The S&P 500
    was off 30 points, or 0.8%, at 3,847.

  • The Nasdaq Composite
    declined 249 points, or 1.9%, to 13,280.

Big losses for tech shares left the Nasdaq sharply lower Monday, falling more than 2%, while also weighing on the S&P 500. The S&P 500 suffered its fifth straight loss, the index’s longest losing streak since a seven-day skid that ended last Feb. 28. The Dow, meanwhile, benefited from a rotation to more cyclically oriented stocks, eking out a gain of 27.37 points, or 0.1%.

What’s driving the market?

A sharp rise in Treasury yields has captured the attention of investors, spelling trouble for tech and other previous highfliers. Higher yields make bonds a more viable alternative to stocks, particularly those that have seen their valuations stretched.

Meanwhile, shares of companies more dependent on the economic cycle have benefited, buoyed by expectations for a pickup in growth as the economy more fully reopens courtesy of aggressive fiscal stimulus, vaccine rollouts and falling COVID-19 cases.

Powell, in testimony prepared for delivery before a Senate panel, offered no indication rising bond yields or inflation expectations would rush the Fed to begin reining in its efforts to support the economy.

Live blog: Fed Chairman Powell’s testimony to Senate Banking Committee

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell said, describing the recovery as “uneven” and “far from complete,” while the path ahead remained “highly uncertain.” Powell, however, acknowledged that “developments point to an improved outlook for later this year.”

Read: Climbing bond yields globally put central banks ‘in a bind,’ warns economist

Meanwhile, rising yields are progressively making bonds viable alternatives to stocks, especially the equities that led the market higher after the onset of the COVID crisis, said Scott Knapp chief market strategist at CUNA Mutual Group.

“While very early in a process that has no guarantee it will continue, market sentiment is moving from ‘there is no alternative to stocks’ to ‘stocks look like the less-attractive alternative,’” he said. “Only time will tell if markets stay on this path.”

In One Chart: Can the bull market in stocks survive rising inflation, bond yields? Here’s what history says

On the fiscal front, the House Budget Committee on Monday approved a $1.92 trillion bill to carry out President Joe Biden’s coronavirus relief plan, a first step toward likely House passage by the end of the week. While the ultimate package is likely to shrink, analysts expect its final price tag to come in not far below Biden’s $1.9 trillion proposal.

continued to drop sharply from its high above $50,000 after Treasury Secretary Janet Yellen on Monday called the cryptocurrency an “extremely inefficient” way to conduct transactions.

Read: A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist

The S&P CoreLogic Case-Shiller home price index showed house prices rose 10% in December.

The Conference Board said its index of consumer confidence rose to a three-month high of 91.3 in February from a revised 88.9 in January.

Which companies are in focus?
  • Shares of electric-vehicle maker Tesla Inc.
    fell more than 6% as bitcoin dropped sharply. Tesla earlier this month revealed that it had bought $1.5 billion of the cryptocurrency.

  • Shares of Wells Fargo & Co.
    were flat after the bank announced an agreement to sell Wells Fargo Asset Management to private-equity firms GTCR LLC and Reverence Capital Partners LP for $2.1 billion.

  • Palo Alto Networks Inc.
    shares fell 2.1% after the cybersecurity company’s quarterly earnings outlook range fell short of the Wall Street consensus late Monday, while beating estimates for the previous quarter.

  • Home Depot Inc.
    shares fell 5.8% even after the home improvement retail giant reported fiscal fourth-quarter profit and sales that rose above expectations and boosted its dividend by 10%.

  • Shares of Macy’s Inc.
    fell more than 4% after the department-store retailer topped fourth-quarter expectations.

  • Software-as-a-service company ZoomInfo Technologies Inc.
    late Monday announced fiscal fourth-quarter results that beat expectations. Shares rose more than 10%.

  • Shares of RealReal Inc.
    were down 17% after the e-commerce retailer of secondhand luxury goods late Monday delivered a wider quarterly loss and said that the pandemic had “temporarily disrupted” its path to profitability.

What are other markets doing?
  • The yield on the 10-year Treasury note
    continued its rise, up 1.5 basis points at 1.371%. Yields and bond prices move in opposite directions.

  • The ICE U.S. Dollar Index
    a measure of the currency against a basket of six major rivals, was up 0.2%.

  • Oil futures gave up early gains, with the U.S. benchmark
    down 0.1% near $61.60 a barrel. April gold futures
    were off 0.3% at $1,802.90 an ounce.

  • In overseas stock trading, the pan European Stoxx 600
    dropped 0.9% and London’s FTSE 100
    was off 0.1%. The Shanghai Composite
    fell 0.2%, while Hong Kong’s Hang Seng Index
    rose 1%.