Rates Pause From Recent Rise and Tech Rips Higher…..

U.S. stocks closed higher on the day, as the recently beat up Information Technology sector took advantage of a cooling in the Treasury yields and U.S. dollar rallies to make a big move higher. After yesterday’s big decline which pushed the Nasdaq towards correction territory, today’s action saw growth and momentum stocks noticeably rebound, taking back Monday’s steep losses. Meanwhile, optimism of a robust second half 2021 economic recovery remained as COVID-19 vaccine rollouts continued to gain traction and the $1.9 trillion fiscal relief package looks headed toward passing through Congress this week. Financials and Energy sectors took a breather after benefitting noticeably from the economic reopening optimism. Shares of Dick’s Sporting Goods and Stitch Fix fell in the wake of their earnings reports, while small business optimism improved by a smaller amount than anticipated. Crude oil prices trimmed a recent surge and gold rebounded solidly. Asia finished mixed, as China fell despite signs of state-backed fund buying, and European equity markets closed higher with the help of a big rebound in the Tech sector.

The Dow Jones Industrial Average rose 30 points (0.1%) to 31,833, the S&P 500 Index gained 54 points (1.4%) to 3,875, and the Nasdaq Composite jumped 465 points (3.7%) at 13,074. In heavy volume, 1.1 billion shares were traded on the NYSE and 6.2 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.04 to $64.01 per barrel. Elsewhere, the Bloomberg gold spot price increased $32.66 to $1,716.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—lost 0.4% to 91.97.

Treasuries rebounded, as the rate on the 2-year note was little changed at 0.16%, the yield on the 10-year note shed 6 basis points (bps) to 1.54%, and the 30-year bond rate declined 7 bps to 2.24%.

Bond yields gave back some of a recent spike that has come courtesy of optimism regarding a robust economic recovery in the second half of 2021 and increasing inflation expectations. The markets also appear concerned that the Fed may be losing control of the yield curve, which has witnessed a noticeable bear steepening, where longer-term rates rise faster than short-term rates. The velocity of the move up in rates seems to have caught the market’s attention more so than the actual level of yields. Ahead of next week’s monetary policy decision from the Fed, commentary from policymakers, notably Chairman Jerome Powell, has suggested the Central Bank remains solely focused on fostering an accelerated recovery in the job market. The Fed has a dual mandate of price stability and maximum employment.

The U.S. dollar also trimmed a recent rally that has taken the Dollar Index to levels not seen since November 2020. The rise in the greenback has likely also contributed to the volatility as the weakness in the dollar that began in the Summer of 2020 has been part of the bullish 2021 theme.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.