U.S. stocks fell on Tuesday, with the S&P 500 pulling back from a record high as the market’s blistering rally in February took a pause.
The Dow Jones Industrial Average dipped about 60 points, falling for the first time in seven days. The S&P 500 fell 0.2%. The Nasdaq Composite bucked the downtrend, gaining 0.2% to hit a new intraday record high. Facebook and Netflix rose more than 2% each, while Amazon, Microsoft and Alphabet all traded in the green.
Investors could be taking some chips off the table following a strong rally boosted by optimism for a smooth reopening amid the Covid vaccine rollout. Cyclical sectors, which had outperformed in recent weeks, led the declines. Energy fell 2.4%, paring its month-to-date gains to 10%. Financials dipped 0.5% after rallying more than 7% this month.
The Russell 2000 also slipped from an all-time high, dipping 0.3%. The small-cap benchmark has surged more than 15% in 2021, beating the S&P 500’s 4% gain, as investors piled into beaten-down value names.
Bank of America said a market correction could be on the horizon as the recent runup has shown signs of overheating, but it will be a buying oppotutinity for equity investors.
“We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and ‘as good as it gets’ earnings revisions,” Jared Woodard, investment and ETF strategist at Bank of America, said in a note.
Lawmakers in Washington appear to be moving closer to another economic relief bill. House Democrats on Monday unveiled the details of a relief proposal that included $1,400 direct checks with faster phase-outs than previous bills. Many believe additional stimulus could help drive the stock market higher.
“The outlook for stocks continues to get more positive in the near term, plain and simple,” Tom Essaye, founder of Sevens Report, said in a note. “The stock positive formula of Massive (and unwavering) Fed support + Massive new fiscal stimulus + COVID declining and vaccine distribution ramping up is becoming more real, and stocks are rallying as a result.”
Given the positive trends in the economic data, it would take a major change in the environment to cause anything more than a minor pullback, said Victoria Fernandez, chief market strategist at Crossmark Global Investments.
“To change the narrative, it would have to be something pretty significant,” Fernandez said. “It would have to be something that really changes the expectations about what’s going to happen with the labor market, or what’s happening with vaccines, or the guidance that we’ve been getting from companies on earnings.”
