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

wallstreet higher 050119 10jan22 lt

Following an early sell-off, stocks showed a notable rebound over the course of the trading session on Monday. The major averages climbed well off their worst levels of the day, with the Nasdaq reaching positive territory.

The Nasdaq tumbled by as much as 2.7 percent in early trading but ended the day up 6.93 points or 0.1 percent at 14,942.83. Meanwhile, the S&P 500 edged down 6.74 points or 0.1 percent at 4,670.29 and the Dow fell 162.79 points or 0.5 percent at 36,068.87.

The early weakness on Wall Street reflected lingering concerns about the economic impact of the Omicron variant of the coronavirus and the likelihood the Federal Reserve will raise interest rates in the near future.

Treasury yields have moved sharply higher in recent sessions, with the yield on the benchmark ten-year note reaching its highest levels since January of 2020.

The jump in yields comes amid a more hawkish tone from the Fed, as the minutes of the central bank's latest meeting indicated it plans to accelerate monetary policy normalization.

Worries about higher rates led to particular weakness among high-growth tech stocks, dragging the tech-heavy Nasdaq down to its lowest intraday level in almost three months.

The subsequent recovery by the markets may have reflected bargain hunting, with Treasury yields pulling back off their highs also contributing to the rebound.

The volatility seen over the course of the day also came as traders look ahead to key inflation data as well as a Senate hearing on Fed Chair Jerome Powell's renomination.

Despite the rebound by the broader markets, airline stocks continued to see significant weakness on the day, resulting in a 1.7 percent drop by the NYSE Arca Airline Index.

Considerable weakness also remains visible among steel stocks, as reflected by the 1.2 percent decline by the NYSE Arca Steel Index.

Retail and telecom stocks also ended the day notably lower, while gold stocks showed a strong move to the upside amid a modest increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Monday, with the Japanese markets closed for a holiday. China's Shanghai Composite Index rose by 0.4 percent, while South Korea's Kospi slumped by 1 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.'s FTSE 100 Index fell by 0.5 percent, the German DAX Index tumbled by 1.1 and the French CAC 40 Index plunged by 1.4 percent.

In the bond market, treasuries climbed well off their worst levels but still closed slightly lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by nearly a basis point to 1.780 percent.

Looking Ahead

Trading on Tuesday may be impacted by reaction to Federal Reserve Chair Jerome Powell's testimony at a Senate Banking Committee hearing on his renomination.

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