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Dow Turns Positive as Value Stocks Lead Comeback; Tech Stumbles

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·3 min read
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By Yasin Ebrahim

Investing.com – The Dow cut its losses Monday, as a sharp move higher in the value stocks on expectations for a further fiscal support and robust economic growth offset tech-led weakness in growth stocks.

The Dow Jones Industrial Average rose 0.39%, or 122 points. The S&P 500 was down 0.25%, while the Nasdaq Composite slumped 1.46%.

As the pace of Covid-19 cases slows and vaccine roll outs rise, and with another round of fiscal stimulus expected to be passed shortly, market participants continue to tout a brighter outlook for the U.S. economy.

Bank of America (NYSE:BAC) upped its GDP growth to 6.5% this year from 6.0% a year ago, and 5.0% in 2022 compared to 4.5% previously, citing strong first quarter economic data.

The $1.9 trillion stimulus bill, which will include the proposed $15 per hour wage proposal, is expected to be passed in the House of Representatives this week, but could face hurdles in the Senate.

Democrat Senators Kyrsten Sinema of Arizona and Joe Manchin of West Virginia have already voiced opposition over the minimum wage proposal.

The stronger backdrop for the economy has placed value stocks like energy and financials and industrials on investor shopping lists.

Energy jumped more than 4% as oil prices continued to accelerated on bets for longer than expected build inventories on lower refinery activity following recent weather-related disruptions across oil-rich Texas.

Goldman Sachs (NYSE:GS) hiked its price target on Brent crude oil by to $70 in the second quarter and $75 in the third, from prior forecasts of $60 and $65 respectively, citing expectations for tight oil markets this summer.

"We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs -- at least in the short run -- to restart upstream activity," Goldman said in a note.

Financials, meanwhile, were pushed higher by rising bank stocks as government bond yields continue to rise on expectations for a faster recovery and a pick-up in inflation.

Some market participants remain wary of the further reaction, though continue to tout further upside as the broader secular remains intact.

"While we remain on alert for short-term corrections ahead, remember that the U.S. cycle is still in 'reflationary expansion' mode- which implies that pullbacks / corrections occur within the context of a broader secular bull market," Janney Montgomery Scott said in a note.

Gains in industrials, meanwhile, were kept in check by a fall in Boeing (NYSE:BA) after the aircraft maker recommended all of its 777 be was grounded following a malfunctioning engine on a 777 jet over the weekend.

Technology struggled to turn positive as investors continue to hit pause on growth stocks, with the Fab 5, excluding Facebook, trading in the red.

Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) were in the red.

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