Dow struggles for direction, while S&P 500, Nasdaq rise in choppy stock-market trade

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U.S. stock benchmarks were up Tuesday afternoon, after three days of heavy losses, but the Dow Jones Industrial Average was struggling for direction on the eve of a key inflation reading.

How are stock indexes performing?
  • The Dow Jones Industrial Average DJIA, -0.21% was up 18 points, or less than 0.1%, at about 32,264. The blue-chip gauge rose as much as 506 points at its session high in early activity, and was wavering between gains and losses Tuesday afternoon.
  • The S&P 500 SPX, +0.39% rose about 30 points, or 0.8%, to 4,021.
  • The Nasdaq Composite COMP, +1.28% jumped 204 points, or 1.8%, to 11,827.

On Monday, the Dow fell 654 points, or 2%, while the S&P 500 declined 3.2%, to close below the 4,000 threshold and at its lowest since March 31, 2021. The Nasdaq Composite plummeted 4.3% to its lowest finish since November 2020.

Over the past three days, the S&P 500 has dropped 7.2% — the biggest three-day decline since March 20, 2020, when the world was confronted with the coronavirus pandemic.

What’s driving markets?

The stock market has been choppy as investors gauge whether the U.S. economy will have a “soft” or “hard” landing as the Federal Reserve seeks to bring high inflation control by lifting interest rates, according to Steve Chiavarone, senior portfolio manager and head of multi-asset solutions at Federated Hermes.

“It’s a jump ball right now,” said Chiavarone, in a phone interview Tuesday. “Volatility is going to reign for some time. 

Under a so-called soft landing, the Fed manages to tame inflation without causing a recession, while a hard landing entails the central bank getting inflation under control through aggressive rate hikes that trigger an economic recession. Under a third scenario — stagflation — the Fed tightens monetary policy enough to cause a recession but still not enough to tame inflation, according to Chiavarone. He said “the market is trying to figure out which of those three is most likely.”

Read: Investors haven’t begun to price in recession — Here’s how far the S&P 500 could fall

Uncertainty around the economic outlook as the Federal Reserve pursues an aggressive cycle of rate increases and other measures aimed at reining in inflation running at its hottest in more than four decades has unsettled investors, according to analysts.

“Markets are clearly confused about what the Fed will do this year and just how aggressive it will get. That can be seen in the volatility in expectations for where the fed funds rate will be at the end of 2022, as seen in fed funds futures. And it is reflected in stock market volatility, with the VIX above 30,” said Kristina Hooper, chief global market strategist at Invesco, in a note.

The VIX is the Cboe Volatility Index VIX, -6.42% a measure of expected S&P 500 volatility over the next 30 days, which is trading above its long-term mean near 20.

If anything, the corporate earnings news since Monday’s close has been negative, with steep earnings-related declines for companies including lending platform Upstart Holdings UPST, -56.96%, online marketplace Groupon GRPN, -10.86% and fuel-cell maker Plug Power PLUG, -6.34%.

See: Upstart stock could shed more than half its value as earnings highlight ‘perfect storm of headwinds’

The broader issue confronting the market is that the Federal Reserve will keep tightening until it sees signs that inflation is getting under control, and there’s no indication that’s anytime soon.

The one asset benefiting is the U.S. dollar DXY, +0.23%, trading around two-decade highs, while gold GC00, -0.95% is holding its own, and riskier assets including bitcoin BTCUSD, +0.90%, sell off. The dollar rally appeared to cool on Tuesday, while Treasury yields continued a pullback from 3 1/2-year highs, with the rate on the 10-year note TMUBMUSD10Y, 2.987% down more than 10 basis points at 2.974%.

“There is one potential catalyzer this week, that could eventually slow down the market selloff: U.S. inflation data due Wednesday. The consumer price index is expected to have eased to 8.1% in April from 8.5% printed a month earlier. A softer inflation is the only thing that could give hope to investors,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Read: Under pressure due to inflation, Biden blasts Republicans for ‘ultra-MAGA’ plan that would ‘raise taxes on working families’

Which companies are in focus?
How are other assets faring?
  • Oil futures lost ground, with the U.S. benchmark CL.1, -3.02% finishing 3.3% lower at $99.76 a barrel, falling back below the $100 threshold for the first time since April 27. Gold futures GC00, -0.95% fell, with gold for June delivery settling nearly 1% lower at $1,841.00 an ounce.
  • The Stoxx Europe 600 SXXP, +0.68% closed up 0.7%, while London’s FTSE 100 UKX, +0.37% gained 0.4%.
  • The Shanghai Composite SHCOMP, +1.06% rose 1.1%, while the Hang Seng Index HSI, -1.84% fell 1.8% and Japan’s Nikkei 225 NIK, -0.58% lost 0.6%.

—Steve Goldstein contributed to this report.