Stocks struggled for direction on Wednesday following a big rally in the previous session that was fueled by a growing belief the worst may be over for the world’s largest economy.
The Dow Jones Industrial Average fell 78 points, or 0.3%, in volatile trading, after rising more than 100 points earlier in the day. The S&P 500 traded 0.1% lower after starting the session with slight gains. The Nasdaq Composite outperformed, rising 0.4% as Apple hit a record high.
Airlines, cruise operators and retail — all groups that would benefit from the economy reopening — were under pressure on Wednesday.
United, Delta and American Airlines all fell more than 3%. Carnival, Norwegian Cruise Line and Royal Caribbean slid 7.1%, 7.8% and 8.4%, respectively. Nordstrom fell 3.3% and Gap lost 4.2%.
U.S. equities rallied on Tuesday, helped by a bevy of bullish news, including a historic jump in retail sales. The U.S. government reported a record 17.7% increase in retail sales for May.
“The market sure seems to be favoring the good news over bad these days, and supportive measures like FOMC bond buying, COV19 vaccine hopes and optimism on a V-shaped economic rebound seem to be getting a lot more traction than rising COVID rates in South/West,” said Mark Newton, managing member at Newton Advisors, in a note.
Stocks were also helped by a Bloomberg News report that the Trump administration is preparing a near $1 trillion infrastructure bill. Positive trial results showed dexamethasone — a widely available drug — can help critically ill coronavirus patients, which also boosted equities. The treatment reportedly reduced Covid-19 deaths in hospitalized patients by up to one third.
“It’s hard to keep a ‘well supported’ stock market down,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “Against a backdrop of widespread caution after a swift 7% decline in the recent days, the stock market was simultaneously bombarded by major pillars of support.”
Federal Reserve Chairman Jerome Powell was set to testify before House members on Wednesday. In front of the Senate Banking Committee on Tuesday, Powell warned of “significant uncertainty” about the economic recovery, adding small businesses are at risk following the pandemic.
Meanwhile, concerns about the coronavirus linger. Multiple reports said Beijing will shut down all schools amid a resurgence in coronavirus cases. In the U.S., more than 2.1 million cases have been confirmed, with states such as Arizona and Texas reporting a spike in cases.
“The attitude of many Americans seems to be that they are done with the coronavirus, but the coronavirus is not done with us,” Marc Odo, portfolio manager at Swan Global Investments, told CNBC. “The large run up in the market was predicated upon everything going right and a return to normal in short order. However, the regional spikes in infections is challenging that optimism.”
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