By JOSEPH Adinolfi and William Watts
Falling oil prices helped bolster appetite for inflation-sensitive tech stocks
U.S. stocks eked out gains on Tuesday as investors' appetite for risk suddenly reversed about halfway through the session, sparking a tech-led rebound that helped two of the three main U.S. benchmarks close higher.
The Nasdaq Composite clinched the largest gain, while the S&P 500 finished slightly higher after spending most of the session in the red. The Dow Jones Industrial Average finished lower, but managed to claw back most of its losses from earlier in the session.
Stocks bounced on Friday, but still ended the week with hefty losses after the S&P 500 logged its worst first-half performance since 1970. U.S. equity markets were shut on Monday for the Independence Day holiday.
What drove markets
The collapse in oil prices and surge in the dollar's value to new multi-decade highs against the euro were the two main factors driving markets on Tuesday, analysts said. The U.S. crude oil benchmark settled more than 8% lower on Tuesday afternoon. The euro was down 1.7% against the dollar, with a dollar worth more than 1.03 euros.
Treasury yields fell Tuesday, as two-year and 10-year notes cemented their largest four-day rally in roughly two years. The yield on the short-dated notes briefly traded above that of the 10-year notes as it had twice earlier this year. This so-called "inversion" of the yield curve is widely considered to be a harbinger of slowing economic growth.
"I think there's an expectation that economic reports might come in not as inflationary as expected," said Mohannad Aama, a portfolio manager at Beam Capital Management. "I think that's what's fueling the rally today at least in the Nasdaq since it's more interest rate sensitive."
Falling commodity prices have helped assuage inflation expectations, which in turn helped to lift the mega-cap tech names that often drive trading in the Nasdaq. Meta Platforms (META) shares rose 5.1%, those of Amazon.com Inc. (AMZN) gained 3.6% and shares of Alphabet Inc. (GOOGL) advanced 4.2%, according to FactSet.
In other news, there were reports that the Biden administration may roll back tariffs imposed on some Chinese goods, potentially helping to crimp inflation imported into the U.S. There also was better economic news out of China. The world's second biggest economy saw its service sector expand in June at the fastest pace in nearly a year.
Looking ahead, equity investors are facing a second-quarter earnings season that poses a risk to stocks as company executives could share more tidbits about a slowing economy, said Adam Koos, president of Libertas Wealth Management.
Analysts polled by FactSet already lowered their expectations for earnings growth during 2022. For the S&P 500, the estimated earnings growth rate for the second quarter of 2022 is 4.1%. If 4.1% is the actual growth rate for the quarter, it will mark the lowest year-over-year growth rate for the index's members since Q4 2020, according to FactSet.
Later this week, the Federal Reserve on Wednesday will release the minutes for its June interest rate-setting meeting, while Friday sees publication of the June U.S. nonfarm payrolls report. Both will be eagerly scanned by investors for clues to the likely pace of Fed interest rate rises.See U.S. economics calendar
The U.S. economic data front was relatively quiet, with U.S. factory orders jumping 1.6% in May in a show of strength among manufacturers, although a more recent survey of of top executives suggests demand might be waning in tandem with a slowing economy.
Companies in focus
(END) Dow Jones Newswires
July 05, 2022 16:44 ET (20:44 GMT)
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