Stocks clawed back some of their earlier losses on Tuesday as shares of major tech companies rose broadly while traders took profits out of names benefiting from the economy reopening.
The Nasdaq Composite was up 0.2% and hit a fresh record high after trading lower to start the session. The Dow Jones Industrial Average traded 151 points lower, or 0.6% and was on pace to snap a six-day winning streak. The 30-stock Dow was down more than 300 points earlier on Tuesday. The S&P 500 was down 0.6%, well off its session lows.
Amazon and Apple gained 2.1% and 1.8%, respectively, to hit all-time highs. Facebook traded 3.1% higher and Netflix rose 2.7%. Google-parent Alphabet was also up 1%.
The trades that have led the latest leg of the market's comeback on optimism about the reopening of the economy were lower Tuesday. United Airlines and Delta Air Lines each dropped more than 6%. Cruise lines Carnival and Royal Caribbean both declined more than 5.7%. Retail-related trades Gap and Simon Property Group dropped as well.
"Today's all about giving back some of the sharp gains we've seen in those value names," said Keith Buchanan, portfolio manager at GLOBALT. Buchanan several factors — including last week's record-setting jobs report — are signaling a much quicker-than-expected turnaround following and have boosted beaten-down stocks such as airlines and cruise lines. "The upcoming economic data is going to be even more important. To confirm that payrolls number is critical."
The moves Tuesday followed sharp gains on Wall Street a day earlier, with the S&P 500 returning to positive territory for 2020 as fears over the coronavirus continued to give way to optimism about the reopening of the American economy.
The S&P 500 leaped 1.2%, or 38.46 points, to 3,232.39 during Monday's regular session and turned positive for the year in a quick about-face following the springtime fears over the virus. At one point this year, the S&P 500 was down more than 30% from its all-time highs. it was positive for 2020 by 0.05% entering the session but Tuesday's losses put it back down 0.6% year to date.
Monday's gains came even as the official economic arbiter in the U.S. declared that the economy entered a recession earlier this year. The National Bureau of Economic Research determined that a "clear peak in monthly economic activity" occurred in February.
Traders say the market's hot streak over the last two months is in large part thanks to confidence about the reopening of the U.S. economy and a barrage of government stimulus.
Market optimists pointed to improving economic signals for the most recent rallies, including the government's far-better-than-expected jobs report last week. The Labor Department said Friday the economy added 2.5 million jobs in May, a record. Economists polled by Dow Jones had forecast a drop of more than 8 million.
"Recent data points like the jobs report and not-as-bad-as-feared company updates have fueled the view that the worst of the declines could be behind us," a team of RBC Capital Markets analysts told clients Monday. "The risk-on trade really is gaining traction. Valuations have spiked to historical highs in many industrial sub-sectors, signaling a strong recovery is potentially taking hold."
But some investors are starting to wonder whether the move has gone too far, too fast considering the economy as just started to reopen. The Federal Reserve begins a two-day meeting Tuesday.
All in, the S&P 500 is up 47% from its March low. Much of those gains have been thanks to the so-called reopening trade, those stocks that would benefit the most if all the Covid-19 precautions and business closures were removed.
Airline shares, which swooned in March amid travel restrictions and contagion fears, have been one of the strongest groups of late. Delta, United and American Airlines are up 62.7%, 91.5% and 100.3% over the last month alone. Another "reopening" group, cruise line operators Carnival and Norwegian Cruise Line are up 75.3% and 116% over the same period.
"Equities continue to trend higher in anticipation of improving economic conditions," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. "But I think it's premature to declare happy days are here again."
"What gives us caution is the duration of Covid-19 remains unknown," said Sandven. "We don't have treatments, we don't have prevention and we're a little bit at the mercy of how fast the virus spreads."
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