Major U.S. stock indexes traded mostly lower on Tuesday, though the Nasdaq Composite edged further into record territory, as investors returned from a three-day holiday weekend unsure about the toll the delta variant of the coronavirus will take on the economic outlook.
How are stock benchmarks trading?
- The Dow Jones Industrial Average DJIA, -0.76% fell almost 235 points, or 0.7%, to 35,134.43.
- The S&P 500 SPX, -0.30% was down 10.5 points, or 0.2%, at 4,524.91
- The Nasdaq Composite COMP, +0.14% ticked up almost 24 points, or 0.2%, to 15,387.23.
The tech-heavy Nasdaq Composite ended at a record on Friday, and gained 1.6% last week. The S&P 500 and the Dow industrials finished the week within touching distances of all-time highs. U.S. markets were closed Monday for Labor Day.
What’s driving the market?
“Investors should be cautious,” said Darren Schuringa, founder of ASYMmetric ETFs, in a phone interview Tuesday. “The markets should be under more downside pressure.”
Schuringa told MarketWatch that he had been planning to attend the Inside ETFs conference in Florida later this month but the event was canceled last week due to COVID-19 related concerns.
“The delta variant, combined with low vaccination rates, has pushed COVID-19 infections once again to over 150,000 confirmed cases per day, slowing the service sector recovery.” David Kelly, chief global strategist for JPMorgan Chase & Co.’s asset management division, said in a note Tuesday. “Looking forward, not just at next year but out to 2023, it now appears more likely that the economy will glide down to a slow-but-steady expansion.”
Kelly expects a slowdown in corporate earnings growth and higher interest rates to lead to “a renewed focus on valuations.”
The S&P 500 is trading at 21.5 times expected earnings over the next 12 months, “far above its long-term average” price-to-earnings ratio while “the top 10 stocks in that index are trading at an even more elevated forward P/E of 30.7 times,” according to his note.
Analysts were also discussing the disappointing August payrolls report released Friday by the Labor Department, which showed 235,000 nonfarm jobs created.
Analysts at BCA Research pointed out that while no leisure and hospitality jobs were created last month, wages rose — an indicator that the delta wave of COVID-19 infections is the primary cause for the jobs disappointment, and not a shift in the industry’s hiring needs.
“We expect strong job growth in the months ahead as supply-side labor constraints are removed and infections rates ease. This implies that the Fed will continue to prepare for the normalization of monetary policy, starting with a taper announcement later this year,” they said.
Strategists at Barclays lifted their year-end S&P 500 price target to 4,600 from 4,400. “We do not believe that the start of the taper will lead to a significant market selloff,” the Barclays strategists said.
Stocks can climb higher on the back of “spectacular” company earnings this year, even as some analysts pullback their forecasts for GDP expansion, according to Wayne Wicker, chief investment officer of MissionSquare Retirement.
“Stock prices tend to follow earnings,” Wicker said in a phone interview Tuesday, explaining that his positive view of the market is based on expectations for “incremental gains” in corporate earnings next year despite slowing growth.
Still, Wicker told MarketWatch he wouldn’t be surprised to see a drawdown in equities as the S&P 500 index is already up more than 20% this year and the delta variant is weighing on investors’ minds.
“A lot of people are kind of wary of the markets,” he said. “Mega-cap technology continues to have investors’ eye” though, said Wicker, as such companies still have superior growth prospects in an economy that may be “slowing down a bit.”
Which companies are in focus?
- State Street Corp. STT, -3.68% announced Tuesday that it had entered an agreement to acquire Brown Brothers Harriman’s Investor Services business for $3.5 billion in cash. The deal includes BBH’s custody, accounting, fund administration, global markets and technology services, and is expected to close by year-end. State Street shares fell 3.4%.
- Shares of Boeing Co. BA, -1.85% were down 1.8%. Ryanair Holdings PLC said Monday that its negotiations with the company over an order for the Boeing 737 MAX 10 aircraft had ended as an agreement on pricing couldn’t be reached.
How are other assets faring?
- The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, 1.371% rose more than 4 basis points to around 1.37%. Yields move in the opposite direction of prices.
- The ICE U.S. Dollar Index DXY, +0.55%, a measure of the currency against a basket of six major rivals, rose 0.5%.
- Oil futures were under pressure, with the U.S. benchmark CL00, -1.31% settling 0.8% lower at $68.75 a barrel on the New York Mercantile Exchange. Gold futures GC00, -2.03% tumbled1.9%, to settle at $1,798.50 an ounce
- European equities closed slightly lower, with the Stoxx Europe 600 SXXP, -0.49% and the FTSE 100 UKX, -0.53% each declining about 0.5%.
- In Asia, the Shanghai Composite SHCOMP, +1.51% rose 1.5%, while the Hang Seng Index HSI, +0.73% rose 0.7% and Japan’s Nikkei 225 NIK, +0.86% advanced 0.9%.
—Steve Goldstein contributed to this report