Date: 10 February 2021
Author(s): Colby Smith and Leke Oso Alabi
Source: Financial Times
US stocks lost steam on Tuesday, pausing a rally that had accelerated on the heels of positive earnings results and optimism over a huge stimulus package in the world’s largest economy.
The blue-chip S&P 500 closed at a lower percentage point of 0.1, breaking the six-day run of back-to-back gains that boosted the benchmark index to a new all-time high on Monday. Tech-heavy Nasdaq Composite on the other hand, rose by just 0.1 per cent.
This reversal came even with Joe Biden’s administration persisting in heaping pressure on Congress to pass his $1.9 trillion stimulus plan as well as positive developments on the coronavirus front. New infections in the US fell to a three-month low on Tuesday.
Chief strategist, Seema Shah, of Principal Global Investors said the high stock valuations were triggering increased scrutiny from investors about inflation.
“Given the wealth of fiscal stimulus that is likely to come in the US, as well as prospects for a surge in pent-up demand … investors are already grappling with the question [of] how much inflation will rise throughout this year,” she said, adding that “with equities so stretched, any inflationary concerns that leak into bond yields will make it more difficult to justify these valuations”.
The price of US Treasuries — which have sold off in recent weeks in anticipation that an economic rebound will result in higher inflation — rose slightly on Tuesday. The yield on the 10-year note fell 0.01 percentage points to 1.15 per cent.
In Europe, the region-wide Stoxx 600 index closed at a dip of 0.1 per cent, while Frankfurt’s Xetra Dax was 0.3 per cent lower and London’s FTSE 100 edged up 0.1 per cent. In the meantime, the FTSE’s All-World index inched up 0.2 per cent to set an all-time high.
Driving equities were accommodative monetary policies and fiscal plans, said Matthias Scheiber, global head of portfolio management at Wells Fargo. “We also see higher earnings expectations in industrials, materials, financials and the energy sector, which has been aided by higher commodities prices,” he said.
The price of Brent crude remained above $60 a barrel, which was the international benchmark’s highest level since January last year and rose 0.9 per cent to reach $61.14 in the afternoon.
Traders continue to bet that the crude market is tightening because of a double hit to supply from production cuts by the Opec+ group of producers and a drop in investment by oil companies. This, combined with hopes of a recovery in energy demand, helped to send West Texas Intermediate above $58 a barrel this week. The US marker climbed a further 0.7 per cent on Tuesday to hit $58.37 a barrel.
On the Asia front, China’s benchmark CSI 300 rose 2.2 per cent and Hong Kong’s Hang Seng closed at 0.5 per cent increase.
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