U.S. stocks traded higher early Wednesday, rebounding after a three-day selloff led by tech shares drove the Nasdaq Composite into a correction just three days after touching a record high.
What are major benchmarks doing?
The Dow Jones Industrial Average DJIA, +1.13% rose 216 points, 0.8%, to trade near 27,707, while the S&P 500 SPX, +1.28% was trading near 3,368, an increase of 37 points or 1.1%. The Nasdaq Composite COMP, +1.35% jumped 152 points, 1.4%, at 11,004.
The Nasdaq Composite on Tuesday ended with a loss of 465.44 points, or 4.1%, at 10,847.69 — marking a pullback of just more than 10% from a record close over three trading sessions for its fastest ever fall from a record into correction territory. The Dow fell 632.42 points, or 2.3%, ending at 27,500.89, while the S&P 500 dropped 95.12 points, or 2.8%, to close at 3,331.84.
What’s driving the market?
Much like the selloff, market watchers saw little in the way of a clear catalyst for Wednesday’s bounce. The tech-led rout came after a rally that some investors and analysts argued had tipped into euphoria, leaving the market vulnerable to a near-term pullback and more volatile trade.
“Those gains didn’t make a lot of sense,” said Donald Calcagni, chief investment officer with Mercer Advisors, in an interview with MarketWatch. “I think the correction is perhaps the market just coming to its senses a bit. when you have Amazon trading at 120 times earnings and the economy is contracting 32%, that just doesn’t make sense.”
Calcagni has spent the past several months with a healthy respect for the coronavirus. “If there are businesses, communities, states, that say, to hell with it, let’s re-open, I share that emotion, but people are still getting sick,” he pointed out. “And the reality is that’s going to spook consumers. If the consumer is spooked they’re not going to spend. That’s going to weigh on the economy.”
He calls himself “bearish” over the next few months as those economic headwinds continue and the likelihood of a contested election looms.
In a note out Wednesday, Sean Darby, global head of strategies at Jefferies, wrote, “The past week has seen the U.S. IT sector gripped by its own ‘volatility doom loop’ with the correction in tech share prices forcing an unwanted rise in volatility over the broader market.”
“It appears that investor positioning rather than the usual suspects of wider credit spreads, a stronger dollar etc. is to blame,” said Darby, who warned late last month that investors needed to be prepared for the risk of near-term drawdowns.
The market on Wednesday may shrug off a setback in a trial for a potential COVID-19 vaccine being developed by AstraZeneca PLC AZN, -1.62% AZN, -2.12%. The drugmaker, in what it described as a “routine action,” paused late-stage trials of its vaccine candidate following an unexplained illness in one of the trial volunteers.
Need to Know:Why an approved coronavirus vaccine may not end the pandemic quickly
On the political front, Democratic presidential nominee Joe Biden on Wednesday proposed a new offshoring penalty that would establish a 28% corporate tax rate, plus a 10% “offshoring penalty surtax” on profits on any production by a U.S. company overseas for sales back to the U.S. The current tax rate on such profits is 30.8%. He also called for a 10% tax credit for companies that make investments that create jobs for American workers, such as by revitalizing existing facilities that have been closed, while also proposing a 21% minimum tax on all foreign earnings.
The U.S. economic calendar is light, with data on July job openings due at 10 a.m. Eastern.
Which companies are in focus?
- Shares of Tesla Inc. TSLA, +8.80% charged 9% higher early Wednesday after dropping 21.1% on Tuesday for its largest one-day drop since going public.
- Lululemon Athletica Inc. LULU, -8.02% shares were down 6.7% in morning trade after the athletic apparel company late Tuesday reported results that beat Wall Street estimates.
- Slack Technologies Inc. WORK, -14.63% shares dipped 4.7%, despite results late Tuesday that unexpectedly showed the collaboration software company broke even in its latest quarter.
- Shares of Tiffany & Co. TIF, -9.81% slumped 12% after LVMH Moet Hennessy MC, -0.45% said it wouldn’t be able to complete the previously announced takeover of the U.S. luxury goods retailer “as it stands.” LVMH cited a letter from the French government asking for a delay in light of the threat of tariffs on French products by the U.S., as well as Tiffany’s request to extend the deadline from Nov. 24 to Dec. 31.
- Snowflake Inc.outlined plans to raise up to $2.74 billion in its initial public offering, which includes orders from Berkshire Hathaway Inc. BRK.B, +1.27% BRK.B, +1.27% and Salesforce.com Inc. CRM, +1.40%, in a filing with the Securities and Exchange Commission late Tuesday.
- Walmart Inc. WMT, +1.86% shares jumped 1.1% Tuesday after the retailer announced it was testing a drone delivery program.
How are other markets trading?
The yield on the 10-year Treasury note TMUBMUSD10Y, 0.685% was up 0.7 basis point at 0.685% as investors prepared for a heavy week of supply which could push prices lower. Bond prices move inversely to yields.
The ICE U.S. Dollar Index DXY, -0.20% , which tracks the performance of the greenback against its major rivals, was down 0.1% to 93.33, reversing earlier gains.
Gold futures GCZ20, +0.46% rose 0.5% to$1,952.70 an ounce. U.S. crude oil benchmark futures CL.1, +1.38% jumped 1.4% to $37.28 a barrel, while global benchmark Brent crude BRN.1, +0.55% was up 0.8% to $40.08, putting it back over the key $40 a barrel threshold, despite questions about the demand outlook.
The Stoxx Europe 600 index SXXP, +1.21% was 1% higher, while the U.K.’s benchmark FTSE UKX, +0.38% gained 0.4%. In Asia, Hong Kong’s Hang Seng Index HSI, -0.63% fell 0.6% to close at 24,468.93, while Japan’s Nikkei NIK, -1.03% , settled at 23,032.54, down 1%.
See: No, this time isn’t different. Trust cyclical stocks, Morgan Stanley argues
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