Canada’s main stock index opened higher on Tuesday, led by an over 2% rise in materials stocks, as gold miners tracked gains in bullion prices.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 132.6 points, or 0.72%, at 18,590.38.
Wall Street’s main indexes opened higher on Tuesday with the Nasdaq rebounding after a steep selloff in the previous session, as U.S. bond yields retreated and investors scooped up beaten-down technology stocks.
The Nasdaq Composite rose 313.9 points, or 2.49% to 12923.071 at the opening bell. The Dow Jones Industrial Average rose 89.9 points, or 0.28%, to 31892.35, while S&P 500 rose 30.6 points, or 0.80%, at the open to 3851.93.
Signs that a $1.9 trillion coronavirus relief package was closing in on final approval sparked a spike in yields on Monday, pushing the tech-heavy Nasdaq to end more than 10% below its Feb. 12 closing high that confirmed a correction.
U.S. 10-year Treasury bond yields eased to 1.54% after hovering near 13-month highs of 1.613% in the prior session. Longer-dated yields have jumped over the last month as investors price in faster-than-expected economic rebound and higher inflation.
Higher yields can weigh even more on tech and growth stocks with lofty valuations, as they threaten to erode the value of their longer-term cash flows.
“Tech stocks are overdue for some kind of bounce after the downfall they have had so far with most investor maintaining a positive outlook on tech stocks in the medium to longer term,” said Michael Sheldon, chief investment officer at RDM Financial in Westport, Connecticut.
“Potential headwind for the market is if interest rates rise further from this point over the short period … since they have risen too fast in too little time.”
The rise in yields has accelerated a rotation from “stay-at-home” winners to stocks primed to benefit from an economic reopening, helping the blue-chip Dow hit an intraday record high on Monday.
The global economic outlook has brightened as vaccine rollouts gain speed and the United States launches a vast new stimulus package, the Organisation for Economic Cooperation and Development said, hiking the policy forum’s forecasts.
In Europe, the Euro STOXX 600 shrugged off data showing a bigger than expected fall in fourth quarter euro zone economic output to rally 0.5%.
Germany’s DAX leapt to its third record high in a week after a surprise rise in January exports.
The speedier rollout of COVID-19 vaccines in some countries and the United States’ planned $1.9 trillion stimulus package helped underpin a brighter global economic outlook, the Organisation for Economic Cooperation and Development said, as it raised its 2021 growth forecast to 5.6%.
“Conviction of a strong economic recovery is boosting risk sentiment and driving demand for riskier assets such as equities,” said Sophie Griffiths, an OANDA market analyst.
“Yesterday’s troubles of rising bond yields have been quashed, for now, and the U.S. dollar is slipping lower.”
Earlier, in volatile trading in Asia, China’s benchmark Shanghai Composite index fell 1.8% to the brink of correction territory amid fears of policy tightening. Japan’s Nikkei finished 1% higher as consumer goods companies and property developers gained on expectations they would benefit from an economic recovery.
MSCI’s all-country index was 0.3% higher.
U.S. Treasury Secretary Janet Yellen said on Monday that President Joe Biden’s coronavirus aid package would provide enough resources to fuel a “very strong” U.S. economic recovery, and noted “there are tools” to deal with inflation.
Still, investors remain conflicted over whether the stimulus will help global growth rebound faster from the COVID-19 downturn or cause the world’s biggest economy to overheat and fuel inflation.
“The chance of our seeing more inflation in the economy is meaningfully increased by the monetary policy actions and the fiscal policy actions that we’re seeing around the world,” Goldman Sachs Chief Executive Officer David Solomon told a conference in Sydney via webcast.
“There is certainly a reasonable outcome where inflation accelerates more quickly than people are expecting, and that will obviously have an impact on markets and volatility.”
The technology sector and other richly valued companies have been highly susceptible to the rising rates.
Australian tech stocks slid for the sixth straight session, in line with their U.S. peers, while a tech sell off meant South Korea’s KOSPI fell 0.7%, dipping for a fourth straight session.
U.S. economic data pointed to a continued recovery. Wholesale inventories increased in January despite a surge in sales, the Commerce Department said on Monday, suggesting inventory investment could again contribute to growth in the first quarter.
“If rates are grinding higher because people are getting optimistic about what economic growth looks like, that is still supportive for equity prices,” said Tom Hainlin, global investment strategist at U.S. Bank Wealth Management’s Ascent Private Wealth Group in Minneapolis.
Euro zone government bond yields fell across the board in the wake of the gloomy fourth quarter economic data.
Germany’s 10-year government bond yield dropped 4 basis points to -0.322%, moving further away from the one-year high of -0.203% in late February.
U.S. Treasuries rallied ahead of a key auction, with 10-year yields dropping by as much as 5 basis points on the day.
In foreign exchange markets, the dollar index backed away from a three-and-a-half-month high and was 0.4% lower. In signs risk appetite might be returning, the British pound, the Aussie, and the Kiwi dollar all edged up. The euro rose half a percent to $1.19155.
Oil prices rose as investors focused on prospects for tighter supply and demand recovery.
Brent crude was up 1.3% at $69.13. U.S. West Texas Intermediate (WTI) added 0.6% to $65.46.
Spot gold added 1.4% to $1,704.46 an ounce.
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