By Yasin Ebrahim
Investing.com – The Dow snapped a five-day winning streak Tuesday on weakness in cyclical stocks, while tech gave up some gains after U.S. bond yields bounced off lows as investors fretted over the Federal Reserve's decision due Wednesday.
The Dow Jones Industrial Average fell 0.39%, or 127 points, the S&P 500 was down 0.2% after hitting a record intraday high of 3,981.30 and the Nasdaq Composite was up 0.1%, though had climbed by more than 1% intraday.
Energy and industrials led the broader market lower, with the latter coming under pressure from a 3% decline in Boeing (NYSE:BA) and a pause in airlines stocks following rally a day earlier. American Airlines Group (NASDAQ:AAL) and United Airlines Holdings (NASDAQ:UAL) ended the day in the red.
Optimism on airlines, however, has picked up in recent weeks on signs of a recovery in air travel demand.
The sea of red across cyclicals were partly offset by strength in tech stocks aided by second-straight day of gains for chip stocks. Intel (NASDAQ:INTC) was among the chip stocks to end the day in the red after the chipmaker unveiled its full range of 11th-generation desktop processors, set to debut at March-end.
Big tech cut some gains, meanwhile, after U.S. bond yields turned positive and served as remainder of the squeeze on long-duration growth stocks seen earlier this month.
Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), Google-parent Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) were off the day's highs, but still in the green as the U.S. United States 10-Year yield rising above 1.6%.
With a day to go until the Federal Reserve reveals its monetary policy and Chairman Jerome Powell makes an appearance, some have called for caution.
The central bank is expected to keep rates unchanged and its $120 billion pace of monthly bond purchases on hold. An update from the Powell, however, has the potential to trigger a move in bond yields that would likely move stocks.
"[W]e do expect the rate move to continue in the very near term. The Fed as ever remains a key wildcard," Jefferies (NYSE:JEF) said. "So we do think folks need to watch the price action quite closely here going into [this week's] Fed meeting."
Others, however, are not waiting around for the update from the Fed amid bets the central bank will have no option but to step up bond buying as the pace of inflation is set to accelerate.
"I have a hunch that what was known as Operation Twist in the late 40s after World War Two and the Fed trying to keep interest rates down by buying 10s and longer bonds that Operation twist may be in our future where the Fed is limited to about $1 trillion in outright spending, and would begin to spend more on 10s, 20s and 30's to keep long interest rates down," former PIMCO Chief Executive Bill Gross said. Gross has been bearish on Treasuries for years. In a tweet on Jan. 9, 2018, he said: "bond bear market confirmed today."
The note of caution has been echoed by the latest Bank of America (NYSE:BAC) survey showing that fund managers are more worried about the Fed tightening policy too early, a so-called taper tantrum, and a spike in inflation than the Covid-19 pandemic.
On the economic front, meanwhile, the consumer was in the spotlight as retail sales fell by more than expected. Economists, however, shrugged off the weaker headline number, blaming it on weather-related events as a cold snap wrecked havoc across the U.S.
"The February weakness was weather-related and will likely prove temporary. Based on card spending data, the dip was concentrated in the third week of the month which coincided with the winter storms that caused extended power outages in Texas," Jefferies said in a note.
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