(AP) — Wall Street capped a wobbly day of trading on Tuesday with modest gains, while Treasury yields extended their recent rally.
The S&P 500 inched up less than 0.1%. About 62% of companies in the index rose, with energy sector stocks notching the biggest gains as crude oil prices rose. Companies that rely on consumer spending also helped lift the market, outweighing declines in health care, communications and technology stocks.
Small-company stocks continued to outpace the rest of the market by a wide margin, a sign that investors are becoming more optimistic about an economic rebound. The Russell 2000 index of small-caps gained 36.95 points, or 1.8%, to 2,127.96, a record high.
Banks and other financial companies added to recent gains as Treasury yields marched higher for the sixth straight day amid expectations that the economy will pull out of its slump later this year.
“The odds of additional stimulus have gone up and we’re seeing some of the sectors that are likely beneficiaries being rewarded in terms of price movement,” said Sal Bruno, chief investment officer at IndexIQ.
The S&P 500 rose 1.58 points, to 3,801.19. The Dow Jones industrial average gained 60 points, or 0.2%, to 31,068.69. The Nasdaq composite added 36 points, or 0.3%, to 13,072.43. The three indexes remain close to the all-time highs each set Friday.
Markets have been charging higher recently amid a wave of optimism about the future. The rollout of coronavirus vaccines has Wall Street anticipating a big rebound for the economy and corporate profits as daily life starts to return toward normal later this year. Expectations are also rising for another round of stimulus coming for the economy because Democrats are set to soon have control of the White House, Senate and House.
But the gains have been so big that critics say stocks and other investments are simply too expensive. Some measures of value in the stock market are at their priciest levels since 2000, when the dot-com bubble was popping. That includes how much investors are paying for each $1 in profits that a company produces.
Low interest rates and almost nonexistent inflation have been encouraging investors to keep piling money into stocks, even though their prices are rising faster than their profits. But longer-term interest rates have begun to pull higher with expectations for more borrowing by the U.S. government, economic growth and possibly inflation in the future. The yield on the 10-year Treasury note briefly hit 1.18% Tuesday, before easing back to 1.14%. That’s up from 1.12% late Monday and from less than 0.90% at the start of the year.
“I wonder whether as the economy reopens and consumer confidence comes back, does that further push rates up and challenge the justification of these values?” said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management.
Besides driving investors away from pricey stocks, higher interest rates can also make borrowing more expensive and hit housing and other industries particularly hard. That could mean additional pressure on the Federal Reserve, which has been trying to keep interest rates low to jolt the economy out of its pandemic-caused weakness.
The Fed has held short-term interest rates at a record low of nearly zero and bought all kinds of bonds in its drive to help the economy. Its next policy meeting on interest rates is in two weeks.
And despite all the hopes for the future, the present remains bleak. The pandemic is accelerating around the world, particularly as new and potentially more contagious variants of the coronavirus spread. That helped force U.S. employers to cut more jobs than they added in December, the first month that has happened since the economy was collapsing last spring.
Meanwhile, energy stocks made broad gains on Wall Street on Tuesday as crude oil prices advanced. Occidental Petroleum climbed 12.6%, while Marathon Oil rose 9.8%.
On the losing end were several of those Big Tech stocks that had cruised as work-from-home and other trends beneficial to them boosted their profits. Microsoft slipped 1.2%, Facebook fell 2.2%, and Google’s parent company dipped 1.1%.