On the anniversary of the Federal Reserve intervention that helped stave off a grave economic depression, stocks are mixed near record highs as investors await Congressional testimony from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen, who have been in focus as interest rates rise above pre-pandemic levels and threaten to undercut stock-market valuations.
Shortly after the market open, the Dow Jones Industrial Average, which closed Monday less than 1% off a March 17 high, fell 87 points, or 0.3%, while the S&P 500 ticked down 0.3%, and the tech-heavy Nasdaq added 0.3%.
Yields on the 10-year Treasury, which move inversely to stocks and have rattled markets in recent weeks, continued to fall from recent highs Tuesday morning, slipping 3 basis points.
Crude oil prices are tanking as much as 4% Tuesday morning, pushing down the prices of energy firms Marathon Oil, Occidental Petroleum and Schlumberger–all of which are down nearly 4% and among stocks heading up the S&P’s losses.
Nasdaq-listed shares of AstraZeneca, which climbed 4% Monday after U.S. clinical trials demonstrated the company’s Covid-19 vaccine is 100% effective in preventing severe disease and hospitalizations, are slipping 2% after federal health officials expressed concerns that the company “may have included outdated information” in its initial trial data.
Across the Pacific, China’s CSI 300 Index, a basket of 300 stocks traded on the Shanghai Stock Exchange, ended the day down 1% as investors sold off equities on fears that impending corporate earnings may disappoint, pushing the index down to its lowest level in three months.
Thanks to Powell’s damn-the-torpedoes approach to stimulating the economy during the pandemic, the Fed’s balance sheet assets have skyrocketed by more than $3 trillion to an all-time high that’s nearly 13 times assets held during the dot-com bubble. Much of that is that because the Fed has been buying up Treasuries and mortgage-backed securities to the tune of $120 billion per month in an effort to boost households and businesses, which of course lubricates the stock market. Experts are concerned that stocks are now ultra-sensitive to any indication the Fed may ease up on its unprecedented accommodation.
“As the economy normalizes and reopens, there are plenty of questions about how the Fed might normalize its monetary policy and what that normalization means for markets,” Greg Marcus, managing director of UBS Private Wealth Management, said in a Tuesday note. “In a post-Covid-19 Fed policy normalization, the market may be better able to tolerate a tapering of asset purchases at an appropriate time as opposed to early interest rate hikes, which the Fed has indicated would be unlikely.”
What To Watch For
Fed Chair Powell and Secretary Yellen are set to testify before Congress Tuesday afternoon in a two-day session to discuss the health of the economy and the need for fiscal stimulus. “Reassurance over a loose monetary policy and a sanguine stance towards the bond market could pull bond yields lower, offering support to stocks,” Oanda analyst Sophie Griffiths said in a Tuesday note.
President Joe Biden’s Build Back Better proposal will reportedly sport a $3 trillion price tag across more than one piece of legislation. In addition to the infrastructure-focused spending, tax hikes on corporations and wealthy individuals should be expected. “Whether split into pieces or combined into one mammoth piece of legislation, this whole infrastructure and tax hike proposal will encounter fierce resistance in Congress and it’s hard to see anything close to what the White House wants getting enacted,” Vital Knowledge Media Founder Adam Crisafulli said of the package Tuesday.