In the first two trading days of the new year, investors have piled into cyclical areas of the market, with shares of companies seen as the biggest beneficiaries of a firming economic recovery and rising interest rates outperforming. The energy, financials and industrials sectors outperformed in the S&P 500 on Tuesday, and the Dow Jones Industrial Average composed heavily of cyclical stocks rose by more than 200 points to set an all-time closing high.
Contracts on the S&P 500 were little changed. Nasdaq futures also drifted after the index dropped more than 1% during the regular trading day. Apple (AAPL) shares steadied following a decline earlier, which pulled the stock back after reaching a $3 trillion market capitalization for the first time ever at the start of the week.
“[Yields are] moving sharply higher today or in the very recent past, but they’ve been stubbornly lower when you compare them to what the inflationary talk has been,” Scott Kimball, Co-Head of U.S. Fixed Income for BMO Global Asset Management, told Yahoo Finance Live on Tuesday. “There’s been lots of discussion about runaway inflation, the Fed being behind the curve. All of that would translate into a long-end — the 10, 20, 30-year portion of the yield curve — that’s a lot steeper, or materially higher even in absolute terms than it is right now.”
Treasury yields especially on the long end of the yield curve moved higher for another session on Tuesday, adding pressure to technology and growth stocks valued heavily on future earnings potential. The benchmark 10-year yield jumped further above 1.6% to reach its highest level since November, albeit while remaining low on a historical basis.
Meanwhile Eddie Ghabour, Eddie Ghabour, founder of KeyAdvisors Group and author of “Common Sense Bull,” told Yahoo Finance he expected the move higher in rates so far this week would ultimately prove to be a “head fake.”
“This increase in rates doesn’t concern me at all. I think it’s going to be short-lived,” he said. “The bigger concern I have right now is the fact that a lot of investors are still carrying a tremendous amount of risk heading into a year that’s going to be unprecedented when the Fed is tightening during a slowdown. It usually is not a good recipe for high-risk assets.
On Wednesday, investors are set to receive more data on the labor market, with ADP releasing a fresh monthly print on private payroll gains for December. This report is expected to show 410,000 private payrolls returned in December, slowing slightly from November’s rise of 534,000. The report comes, as usual, two days before the Labor Department’s monthly jobs report, which is also expected to show non-farm payroll gains of more than 400,000 for the final month of 2021 as the labor market recovery extended further.
— 6:15 p.m. ET Tuesday: Stock futures little changed
Here’s where markets were trading Tuesday evening: S&P 500 futures (ES=F): -0.75 points (-0.02%), to 4,783.50
Dow futures (YM=F): -12 points (-0.03%), to 36,663.00 Nasdaq futures (NQ=F): -9.5 points (-0.06%) to 16,266.25
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter —