Dow extends rally into record territory, as Texas deep freeze boosts energy shares

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U.S. stocks traded modestly higher Tuesday, with benchmarks pushing further into record territory, as investors watched progress toward President Joe Biden’s $1.9 trillion coronavirus relief package and data showing falling COVID-19 cases, which fell to their lowest level in four months on Presidents Day.

The energy sector was the top gainer in the S&P 500 as a nationwide deep freeze sent prices of natural gas soaring and gave a lift to crude oil prices.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average DJIA, +0.11% trimmed its early gain but remained up 61.87 points, or 0.2%, at 31,520.27.
  • The S&P 500 index SPX, -0.08% was up 4.76 points, or 0.1%, at 3,939.59.
  • The Nasdaq Composite COMP, -0.38% gained 28.33 points, or 0.2%, to trade at 14,123.80.

Markets were closed in observance of Presidents Day on Monday but before that the Dow, S&P 500 and Nasdaq all closed at record highs Friday.

What’s driving the market?

The energy sector was up 2.3%, while utilities suffered as prices for natural gas soared in response to cold weather that was seen blocking transportation of crude and fuel oil, while also forcing the temporary shutdown of refineries. The utility sector was the S&P 500’s worst performer, down 0.7%.

The energy problems sent oil and natural-gas prices to their highest levels in months, with West Texas Intermediate CL.1, +0.64% previously topping $60 a barrel, while Brent oil, the international benchmark BRN00, -0.25%, was above $63 a barrel and natural gas prices NG00, +4.50% were up over 9% on the day.

More broadly, the reflation trade appeared to be in place, with benchmark bond yields on the rise as investors await a COVID relief package that’s expected to come in below but close to Biden’s $1.9 trillion proposal.

With Donald Trump’s second impeachment trial over, analysts said investors remained focused on the fiscal battle in Washington.

“Markets seem more than pleased by this return to ‘normalcy’ as further evidence builds that vaccines, enhanced government support and easy Fed policy open a clear path for a summer of recovery,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute, in a note.

Smart said worries about long-term unemployment or runaway inflation seem “beside the point when so much of the near-term looks good. Those concerns will eventually take center stage, he said.

The House Budge Committee was expected to put together all of the component’s of the Biden administration’s ambitious proposal into one bill to be voted on by the House before the end of the month.

The aid package that is being backed by Speaker Nancy Pelosi‘s Democrats, includes $1,400 per-person direct payments, an expanded child tax credit, aid to state and local governments and an expansion of unemployment insurance with $400-per-week federal payments through Aug. 29, The Wall Street Journal reported. It wold also include a gradual hike in the minimum wage to $15 an hour, though the wage measure is seen facing a stiff challenge in the Senate where two Democrats have raised concerns.

Meanwhile, COVID-19 case numbers have been declining. The U.S. averaged 85,798 new cases a day in the past week, down 41% from the average two weeks ago. 

The global tally of confirmed COVID-19 cases climbed above 109 million on Tuesday, according to data aggregated by Johns Hopkins University, while the death toll rose above 2.4 million. On Monday, there were more than 52,000 new cases reported, down from 64,938 a day earlier and 89,727 a week earlier, but the data may be underreported given reduced staffing at weekends and on holidays.

Declining viral cases and hope for the more economic aid to help limit the economic harm from COVID come as a cold snap is putting millions of people, notably a swath of Texas, in the dark, amid a crippling winter storm that has ratcheted up demand for energy assets. The Electric Reliability Council of Texas estimated that about 2 million homes were without power on Monday.

The bond market, meanwhile, was under pressure. The 10-year Treasury note yield TMUBMUSD10Y, 1.286% ticked up to around 1.26%, from 1.199% Friday. Yields rise when prices fall.

The steady rise in yields, reflecting growing borrowing costs and greater competition between the appeal of risk-free fixed-income compared against stocks, doesn’t appear to be harming the bullish picture for equities at the moment. However, investors were keenly watching that dynamic.

“However, while yields continue to focus on the COVID-19 economy recovery they are still below danger levels for” stocks, wrote Peter Cardillo, chief market economist at Spartan Capital Securities, in a Tuesday research note.

The New York Fed’s Empire State business conditions index rose 8.6 points to 12.1 in February, the regional Fed bank said Tuesday. This is the highest level of activity since July. Economists had expected a reading of 5.9, according to a survey by The Wall Street Journal. Any reading above zero indicates improving conditions.

Which stocks are in focus?
  • Shares of Southwest Airlines CoLUV fell 0.4% after the air carrier disclosed its operations update for January and provided a February outlook that showed further improvement.
  • Shares of Palantir Technologies IncPLTR dropped 9%, after the data integration and software company reported a surprise fourth-quarter loss, although revenue rose more than forecast.
  • Shares of CVS Health Corp. CVS fell 4%, after the drugstore and health benefits company reported fourth-quarter profit and revenue that beat expectations.
  • Shares of Shopify Inc. SHOP rose 0.9%, after Susquehanna analyst John Coffey raised his price target by 37% ahead of the e-commerce platform company’s fourth-quarter report.
  • Shares of Microsoft Corp. MSFT were off 0.4%, after Wedbush analyst Dan Ives raised his price target, saying cloud deal activity is hitting its next gear of growth.
What are other markets doing?
  • Japan’s Nikkei 225 index NIK, +1.28% ended 1.3% higher after finishing Monday above the 30,000 level for the first time in more than 30 years. Hong Kong’s Hang Seng Index HSI, +1.90% rose 1.9%, while trading in Shanghai remained closed for the Lunar New Year holiday.
  • In Europe, the Stoxx 600 SXXP, -0.06% and London’s FTSE 100 UKX, -0.11% each fell 0.1%.
  • The ICE U.S. Dollar Index DXY, +0.09%, a measure of the currency against a basket of six major rivals, was up 0.1%.
  • Gold futures fell, with the April contract GCJ21, -1.42% down 0.6% near $1,812.40 an ounce.