US Stocks Finished Mixed as Investors Rotate into Sectors Benefiting from Stimulus Package

The major U.S. equity indexes finished mixed on Tuesday with the broad market closing slightly lower and the technology-driven index posting a new closing high. The catalyst behind the price action was investor rotation out of large-cap tech names into other sectors seen as benefiting from President Joe Bidens proposed $1.9 trillion stimulus bill.

Cash Market Performance

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 3911.23, down 4.36 or -0.12%. The blue chip Dow Jones Industrial Average finished at 31375.83, down 9.93 or -0.03% and the tech-based NASDAQ Composite Index closed at 14007.70, up 20.06 or +0.15%.

Early Tech Gains Give Way to Portfolio Reallocations

The tech-heavy NASDAQ hit an all-time high for the fifth consecutive session on early gains in Apple Inc, Amazon.com Inc and Google-parent Alphabet Inc, which later turned lower amid a shift in portfolio allocations.

The NYSE FANG+TM index, which includes Facebook Inc, Netflix Inc and Tesla Inc, rose to an all-time high.

“You‘re not seeing money coming out of the market and going into cash,” James said. “You’re seeing money coming out of one sector and being rotated into another sector to maintain an overall long bias.”

Investors Cautious Despite Few Significant Negatives

The number of U.S. COVID-19 cases are falling, expectations the stimulus package will be approved in Congress are rising, largely upbeat corporate earnings, and loose monetary policy, have powered the major U.S. stock indexes to record highs. Nonetheless, analysts caution the new COVID variants and any glitches in vaccine rollouts could weaken positive sentiment.

“The backdrop is largely for stocks and Im not sure there could be a better backdrop for risk assets in the near to intermediate term,” said William Herrmann, co-founder and managing partner at Wilshire Phoenix in New York City.

Progress Being Made Toward President Bidens Coronavirus Relief Package

Data released last Friday showed slower-than-expected jobs growth in the labor market, underscoring the need for more government aid to curtail the effect of the COVID-19 pandemic, President Biden has said.

House Democrats on Monday unveiled the details of a relief proposal that included $1,400 direct checks with faster phase-outs than previous bills.

Democrats in the U.S. Senate continue to try to find a way to include a minimum wage increase in a comprehensive COVID-19 relief bill they aim to advance in the coming weeks, Senate Majority Leader Chuck Schumer said on Tuesday.

Sectors, Stocks and Earnings

The energy sector, among those that led the recent rally, slipped a bit, while communication services rose.

Toymaker Mattel Inc rose, while telephone equipment maker Cisco Systems Inc slipped ahead of reporting earnings after the market close.

Gucci lipstick maker Coty Inc tumbled as weak demand for makeup products wiped millions off its quarterly revenue.

Take-Two Interactive Software Inc fell after the videogame publisher posted a drop in quarterly adjusted sales and shied away from announcing any new big releases.

Analysts forecast a fourth-quarter S&P earnings gain of about 2.5%, a stark reversal from the 10.3% annual decline seen at the beginning of the year, per Refinitiv.