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Dow Hovers Near Record High as Rising Cyclicals Stem Blow From Tech

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·3 min read
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By Yasin Ebrahim

Investing.com – The Dow hovered near record highs Wednesday as rising energy stocks and data pointing to underlying strength in the economic recovery offset weakness in tech-led growth stocks.

The Dow Jones Industrial Average rose 0.12%, or 38 points, and remained close to its record intraday high of 31,608.63. The S&P 500 was down 0.25%, while the Nasdaq Composite slipped 0.90%.

Retail sales rebounded in January, rising 5.3% from a decline in December, topping economists forecast for a 1.1% increase, underpinned by stimulus boost to consumer spending.

"January's performance was very impressive … fiscal stimulus is the clear driver, and today's report is proof that there's significant propensity to spend stimulus payments," Jefferies (NYSE:JEF) said in a note. "There's more coming in March, with additional supports from the reopening and vaccinations, so this is just the beginning."

The signs of the strength in the consumer, the backbone of the economy comes as the Federal Reserve minutes suggested that it will likely "take some time" until the central banks thinks about tightening monetary policy measures.

"With the economy still far from those goals, participants judged that it was likely to take some time for substantial further progress to be achieved," the Fed's minutes showed.

Cyclicals stocks were in favor, led by gains in energy on higher oil prices as the cold snap sweeping across the U.S. offset reports that Saudi Arabia plans to boost oil output and ditch its recent production cut.

Devon Energy (NYSE:DVN), Cabot Oil&Gas (NYSE:COG) and Chevron (NYSE:CVX) were among the biggest gainers in the energy sector.

Chevron was also boosted by report released Tuesday, showing that Berkshire Hathaway invested $4.1 billion in Chevron.

Financials were flat on the day as high-flying bank stocks, which have largely led the gains for the sector, struggled to turn positive as Treasury yields paused on their recent rally.

Wells Fargo (NYSE:WFC), however, rallied more than 5% as the Federal Reserve is reportedly set to approve the bank's plans to overhaul its governance functions. The approval would bring the bank closer to getting its asset cap, which limits the bank to $1.95 trillion in assets, removed.

Technology stocks stifled gains in the broader market as the pick up in yields has some suggesting it may be time to be cautious on growth stocks.

Shopify (NYSE:SHOP) slipped 2% even as its fourth-quarter results topped analysts' estimates, following a pandemic-fueled pick up in business moving operations online.

Palantir Technologies Inc (NYSE:PLTR) jumped 2%, meanwhile after Goldman Sachs (NYSE:GS) upgraded its rating on the company to buy from neutral, citing increased visibility into the company’s growth.

The sluggish day on Wall Street for stocks has not drowned out the bullish sentiment, with analysts saying a potential correction was unlikely to reverse the longer-term upward trend.

"[W]e would note that some type of pullback / consolidation phase is warranted at this stage, … Corrections are standard throughout the course of every structural / secular bull cycle, and we believe the S&P in particular has enough bandwidth to sustain a correction of -10-15% without negating its longer-term uptrend," Janney Montgomery Scott said.

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