U.S. Stocks Stage Significant Recovery After Early Sell-Off

After moving sharply lower early in the session, stocks showed a substantial recovery over the course of the trading day on Tuesday. The major averages climbed well off their early lows, with the Dow and the S&P 500 reaching positive territory.

The Dow plunged by more than 360 points in early trading but ended the day up 15.66 points or 0.1 percent at 31,537.35. The S&P 500 also inched up 4.87 points or 0.1 percent to 3,881.37 after tumbling by as much as 71 points.

Meanwhile, the tech-heavy Nasdaq finished the session down 67.85 points or 0.5 percent at 13,465.20 but was well off the nearly one-month intraday low set in early trading.

The early sell-off on Wall Street reflected concerns about the outlook for inflation and the potential for higher interest rates due to the recent increase in bond yields.

The yields on ten-year notes and thirty-year bonds reached their highest intraday levels since the early days of the coronavirus pandemic earlier in the day.

However, selling pressure waned as traders reacted to Federal Reserve Chair Jerome Powell’s prepared remarks before the Senate Banking Committee.

Powell reiterated interest rates will remain at near-zero levels and the Fed will continue its asset purchases at the current rate until “substantial further progress” has been made toward its goals of maximum employment and price stability.

“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.

With regard to inflation, Powell acknowledged that consumer prices have partially rebounded following the steep drop last spring but noted prices for sectors that have been most adversely affected by the pandemic remain “particularly soft.”

The Fed chief said annual inflation remains below the central bank’s 2 percent target and reiterated monetary policy is likely to remain unchanged until inflation is on track to moderately exceed 2 percent for “some time.”

Traders subsequently seemed to use the early weakness on Wall Street as an opportunity to pick up stocks at relatively reduced levels.

On the U.S. economic front, the Conference Board released a report showing consumer confidence has improved more than expected in the month of February.

The Conference Board said its consumer confidence index rose to 91.3 in February from a downwardly revised 88.9 in January.

Economists had expected the consumer confidence index to inch up to 90.0 from the 89.3 originally reported for the previous month.

Sector News

Oil stocks moved sharply higher over the course of the session, driving the NYSE Arca Oil Index up by 2.4 percent to its best closing level in a year.

The rally by oil stocks came even the price of crude oil for April delivery edged down by 0.03 to $61.67 a barrel after spiking by more than $2 a barrel on Monday.

Substantial strength also emerged among airline stocks, as reflected by the 2.2 percent jump by the NYSE Arca Airline Index. The index also ended the session at a one-year closing high.

On the other hand, gold stocks showed a significant move to the downside, dragging the NYSE Arca Gold Bugs Index down by 2.1 percent.

The pullback by gold stocks came as the price of gold for April delivery slipped $2.50 to $1,805.90 an ounce after soaring by more than $30 an ounce in the previous session.

Networking stocks also saw considerable weakness on the day, resulting in a 1.3 percent drop by the NYSE Arca Networking Index.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday, with the Japanese markets closed for a holiday. China’s Shanghai Composite Index edged down by 0.2 percent, while Australia’s S&P/ASX 200 Index advanced by 0.9 percent.

The major European markets also finished the day mixed. While the German DAX Index fell by 0.6 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both inched up by 0.2 percent.

In the bond market, treasuries showed a lack of direction over the course of the session before closing little changed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 1.362 percent.

Looking Ahead

Powell’s second day of testimony on Capitol Hill may attract some attention on Wednesday along with a report on new home sales in the month of January.

On the earnings front, retailers Lowe’s (LOW) and Office Depot (ODP) are among the companies due to report their quarterly results before the start of trading on Wednesday.