Dow logs record as cold snap lifts energy stocks, and rise in yields buoys banks

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The Dow industrials eked out a record gain, but the other main equity benchmarks limped lower, as progress toward President Joe Biden’s $1.9 trillion coronavirus relief package and data showing falling COVID-19 cases, failed to help stocks definitively overcome unease centered on a steady rise in government bond yields.

The energy sector, meanwhile, was the top gainer in the S&P 500 as a deep freeze swept across much of the middle of the U.S., sending prices of natural gas soaring and giving a lift to oil prices.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average DJIA, +0.20% rose 64.35 points, or 0.2%, to 31,522.75, booking a second straight record high.
  • The S&P 500 index SPX, -0.06% finished down 2.24 points, or 0.1%, to 3,932.59.
  • The Nasdaq Composite COMP, -0.34% tumbled 47.97 points, or 0.3%, to 14,047.50.

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

What’s driving the market?

Energy stocks gained 2.3% as prices for natural gas soared in response to a bitter cold snap that has put 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 two million homes were without power on Monday and the freezing weather was seen blocking transportation of crude and fuel oil, while also forcing the temporary shutdown of refineries.

The energy problems sent oil and natural-gas prices to their highest levels in months, with West Texas Intermediate CL.1, +1.18% closing above $60 a barrel for the first time since January, while Brent oil, the international benchmark BRN00, +0.16%, rose to over $63 a barrel and natural gas prices NG00, +6.49% settled up nearly 5% on the day.

See: Natural-gas prices soar amid freezing U.S. temperatures, while oil prices touch more than one-year highs

Though equities struggled to gain traction, the reflation trade appeared to be in place in commodities and bonds, with benchmark Treasury yields on the rise as investors await a COVID relief package that is expected to come in below, but close to, Biden’s $1.9 trillion proposal.

“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.” But he also said those concerns will eventually take center stage.

The House Budget 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 also would 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.

The bond market, meanwhile, was under pressure. The 10-year Treasury note yield TMUBMUSD10Y, 1.315% climbed to a one-year high of 1.30%, 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 assets compared with stocks, was being keenly watched by investors.

Read: Bond markets have ‘never been so sensitive’ to a Treasury yield surge

“The bull market in equities won’t come under stress if rates rise, as long as the reason for that rise is tied to higher growth expectations,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. But she added the real trouble for equities will come when the Fed starts to sound more hawkish, which seems unlikely this year.

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?
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, +0.12%, a measure of the currency against a basket of six major rivals, was up 0.1%.
  • Gold futures fell as bond yields rose, with the April contract GCJ21, -1.61% falling $24.20, or 1.3%, to settle at $1,799 an ounce. In oil, benchmark crude futures climbed 58 cents, or 1%, to settle at $60.05 a barrel.