Stock futures were mixed in early morning trading Wednesday after the Dow Jones Industrial Average notched a record close the previous day as investors flocked to shares that stand to benefit from an economic recovery.
Futures on the blue-chip Dow and the S&P 500 were flat, while Nasdaq 100 futures moved 0.3% lower.
Early losers included Dow component Salesforce, which fell more than 2% in premarket trading following a downgrade from UBS, which also cut Adobe, sending its shares down 1.8%.
Markets also faced pressure from stocks associated with the economic reopening: Wynn Resorts fell 2%, while Las Vegas Sands was off 1.5%. With Covid cases rising, pharma companies were under pressure, with Regeneron down 3% following a downgrade from Bank of America.
Bank of America gave an upgrade to Pfizer, however, noting that the company’s profits from Covid treatments provide upside for the stock. Shares moved 1.7% higher in premarket trading.
Investors were looking for clues on where the economy stands heading into the new year. ADP reported Wednesday that private job growth totaled 807,000 in December, more than double the Dow Jones estimate of 375,000. The data in the report covers only through the middle of December, however, before the worst of the escalation in Covid cases and concerns.
Investors also awaited the release of minutes from the December Federal Reserve meeting. Policymakers decided then to accelerate the pace of the monthly bond buying taper and indicated that three quarter-percentage-point interest rate hikes are coming in 2022. They also adjusted their outlook on inflation and economic growth.
However, the market will be looking for additional information on where officials see policy heading, particularly on what will happen with the Fed’s nearly $9 trillion balance sheet.
The Dow and S&P are higher so far for the first week of the year, though the tech-heavy Nasdaq has taken a turn. On Tuesday, while the Dow climbed 200 points to a new high, the tech-focused Nasdaq Composite suffered a sell-off, down 1.3%, amid a rapid rise in Treasury yields. The closely-watched benchmark 10-year Treasury yield was as high as 1.71% Tuesday, triggering selling in growth-oriented technology stocks, which initially led market gains to start the week.
While some investors see the 10-year yield rising as high as 2% this year, they don’t expect it to go much higher than that.
Megacap tech stocks underperformed the S&P 500 Tuesday as “investors reconsidered the value of such long-duration assets in the wake of higher rates,” Chris Hussey, a managing director at Goldman Sachs, said in a note.
“The Fed is accelerating its removal of liquidity because inflation has broadened, which has the potential to push 10-year yields higher,” Ed Al-Hussainy, senior rates strategist at Columbia Threadneedle, said in a note. “But the central bank must be careful not to act too aggressively, which could derail the economic recovery and cause a recession.”
Wall Street strategists are expecting a bumpier road ahead for the stock market as the Fed begins to tighten its ultra-easy monetary policy. The median year-end target for the S&P 500 now stands at 5,050, only a 5% gain from Tuesday’s close of 4,793.54, according to CNBC’s Strategist Survey.
On Tuesday, investors flocked to shares that stand to benefit from an economic recovery.