Dow up 120 points in attempted bounce after biggest fall in 8 months

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U.S. stocks opened slightly higher Tuesday, marking an attempted bounce for equities after rising worries over the spread of the delta variant of the coronavirus that causes COVID-19 triggered a selloff that left major benchmarks at nearly one-month lows on Monday.

What are stock-market indexes doing?
  • The Dow Jones Industrial Average
    DJIA,
    +1.25%
    rose 125.68 points, or 0.4%, to 34,087.72.

  • The S&P 500
    SPX,
    +0.88%
    was up 10.17 points, or 0.2%, at 4,268.66.

  • The Nasdaq Composite
    COMP,
    +0.49%
    ticked up 4.34 points, or less than 0.1%, to 14,279.32.

On Monday, the Dow tumbled 725.81 points, or 2.1%, to end at 33,962.04, suffering its biggest one-day loss since October. The S&P 500 dropped 1.6% and the Nasdaq Composite shed 1.1%, for their biggest declines since May.

What’s driving the market?

Stocks sank Monday in a move largely attributed to fears the spread of the delta variant in Asia in particular would slow down the global economic recovery and possibly lead to renewed restrictions on travel and activity as inflation continues to rise. The World Health Organization says cases and deaths are climbing globally after a period of decline, spurred by the highly contagious delta variant.

Tensions between U.S. and China are also raising concerns about global trade. On Monday, the Biden administration accused the Chinese government of hacking Microsoft.

Read: Why did the Dow tumble Monday? Economic growth is now a bigger worry than inflation.

“The word ‘stagflation,’ which was a theme in the late 1970s, is being bantered about again: a stagnant economy and inflation, an intractable combination of problems,” said Marshall Gittler, head of investment research at BDSwiss Holding Ltd., in a note.

Worries about the economic growth outlook could limit potential for equities to bounce in the near term, while making life more difficult for economic policy makers with inflation rising in the U.S, analysts said. The Federal Reserve has signaled it’s prepared to begin discussing when it would be appropriate to begin tapering its monthly bond purchases, which would eventually be followed by interest rate increases.

“On the one hand, it will be difficult to keep planning hikes in case the economy is hurt again, while on the other one, you cannot ignore inflation if it continues to skyrocket well above your objective,” said Charalambos Pissouros, head of research at JFD Group, in a note. “ For now, a cocktail of virus concerns and expectations of rate hikes in early 2023 may keep investors morale dented.”

The Tell: Why a bond rally could drive the 10-year Treasury yield lower still, even as inflation expectations become unmoored

Apple Inc.
AAPL,
+1.22%
has pushed back plans for employees to begin a return to the office for workers from early September to October, Bloomberg reported.

Stock-market investors continue to track the Treasury market, where a rally in long-dated maturities has sent yields sharply lower, amplifying worries about the economic outlook. The yield on the 10-year note
TMUBMUSD10Y,
1.166%
was down 4 basis points at 1.148%, after falling Monday to its lowest since mid-February. Treasury yields saw renewed pressure Tuesday morning after a round of mixed housing data.

See: Bond rally puts a 1% 10-year Treasury yield back in sight

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.64 million in June, representing a 6.3% increase from the previous month’s downwardly-revised figure, the U.S. Census Bureau said. The pace of permitting for new housing units dipped again in June, however. Permitting for new homes occurred at a seasonally-adjusted annual rate of nearly 1.6 million, down 5% from May but 23% up from a year ago.

Meanwhile, the corporate earnings reporting season is forecast to see S&P 500 index company profit growth of nearly 70% for the second quarter from a year earlier as the economy recovers from the pandemic, but investors fear slowing earnings growth in the second half of the year.

Which companies are in focus?

  • Shares of International Business Machines Corp.
    IBM,
    +4.71%
    were up more than 3% after the company late Monday reported revenue growth for a second consecutive quarter.

  • AMC Entertainment Holdings Inc.
    AMC,
    +6.44%,
    the world’s largest movie-theater chain, is reopening two of the top-grossing theaters in the Los Angeles area, which have been closed for more than a year. Shares of the popular meme stock were up 4.4%.

  • Shares of Travelers Companies Inc.
    TRV,
    -0.85%
    were down 1.4% after it swung to a second-quarter profit that was well above expectations, fueled by strong growth in investment income and a drop in catastrophe losses.

  • Philip Morris International Inc.
    PM,
    -2.30%
    shares were down 3.7% after the tobacco company topped earnings forecasts but missed on revenues.

  • Halliburton Co.
    HAL,
    +2.82%
    shares rose 0.4%, after the company reported stronger-than-expected profit for the second quarter.

What are other markets doing?
  • The ICE U.S. Dollar Index
    DXY,
    +0.16%,
    a measure of the currency against a basket of six major rivals, rose 0.2%.

  • Oil futures were under renewed pressure, with the U.S. benchmark
    CL00,
    -0.29%
    down 0.6% at $65.93 a barrel. Gold futures
    GC00,
    +0.85%
    rose 0.6% to $1,820.30 an ounce.

  • In European equities, the Stoxx Europe 600
    SXXP,
    +0.03%
    and London’s FTSE 100
    UKX,
    -0.03%
    traded near unchanged.

  • In Asia, the Shanghai Composite
    SHCOMP,
    -0.07%
    edged down 0.1%, Hong Kong’s Hang Seng Index
    HSI,
    -0.84%
    fell 0.8% and Japan’s Nikkei 225
    NIK,
    -0.96%
    shed 1%.

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