U.S. markets and stock exchange traded funds slipped Tuesday after a stellar first day of March.
On Tuesday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 0.6%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was up 0.1%, and iShares Core S&P 500 ETF (NYSEArca: IVV) was flat.
“We’re just taking a breather after yesterday,” Fahad Kamal, chief investment officer at Kleinwort Hambros, told the Wall Street Journal.
The S&P 500 on Monday enjoyed its best single-day gain since June 2020.
“The state of the bond market is driving everything,” Kamal added. “The central banks continue to be the real pivot in markets right now: as long as they continue to buy enormous amounts of bonds in the market, the upside move [in yields] is capped.”
Yields rose Tuesday and have climbed over the past month as more investors anticipate a return to economic expansion, with inflation still a possibility due to the copious amounts of stimulus.
The recent volatility in markets “shows how hostage we are to policy remaining exactly where it is,” Georgina Taylor, a multiasset fund manager at Invesco, told the WSJ. “There is no real room for policy tightening to take hold: we still need that to be supportive of the economic recovery.”
Federal Reserve Chairman Jerome Powell has told members of Congress that the central bank will maintain its low interest rate policy and continue asset purchases until clearer progress has been made on employment and inflation.
The U.S. Senate will now look over President Joe Biden’s coronavirus relief bill this week with Democrats aiming to pass the legislation through ‘reconciliation’, which would only require a simple majority, Reuters reports.
“The market works like a pendulum and has a tendency to go down after seeing gains like in the previous session,” Randy Frederick, vice president at Charles Schwab, told Reuters. “But concerns over lofty valuations and inflation persist even as the overall trend seems to be positive.”
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