Dow notches fifth straight gain as investors eye potential change in leadership

Dow notches fifth straight gain as investors eye potential change in leadership

Apple rolls out new iPhones, iPad and Watch

U.S. stocks closed at session highs Tuesday as a rally in energy, industrials and materials stocks overshadowed a selloff in momentum-driven technology shares, helping the Dow extend its win streak to five sessions and the S&P 500 index avoid consecutive declines after trading in the red for most of the session.

Apple Inc. AAPL, +1.18%  was in the spotlight as it announced new model iPhones and other products at its annual launch event Tuesday afternoon.

How did the major benchmarks fare?

The Dow Jones Industrial Average DJIA, +0.28%   rose 73.92 points, or 0.3%, to 26,909.43, while the S&P 500 index SPX, +0.03% added 0.96 point, or less than 0.1%, to 2,979.39. The Nasdaq Composite index  COMP, -0.04%   retreated 3.28 points, or less than 0.1%, to 8,084.15

At session lows, the Dow fell 118.46 points, or 0.4%, the S&P 500 lost 21.42 points, or 0.7% and the Nasdaq was down 85.75 points, or 1.1%.

What drove the market?

Investors eyed a potential rotation in market leadership from defensive names and fast-growing tech stocks into cyclical sectors, including energy, industrials and materials, all of which have posted gains Tuesday, in contrast with the S&P 500.

“The big story is the continuing rotation that we saw begin a couple days ago,” Willie Delwiche, market strategist with R.W. Baird told MarketWatch. “If we can actually move away from narrow, defensive leadership into cyclical and small-cap leadership, that would be a healthy development for the market.”

Defensive sectors, including real estate, utilities and consumer staples weighed on the major indexes Tuesday while small capitalization stocks, as measured by the Russell 2000 RUT, +1.23%,  posted gains. The share of stocks advancing versus declining on the New York Stock Exchange came in at nearly 3-to-2, a potentially bullish signal going forward, Delwiche said.

Information technology shares were also under pressure Tuesday, down 0.5%, one day after the attorneys general of 50 U.S. states announced an investigation into Google’s ‘potential monopolistic behavior’ on Monday, underscoring regulatory concerns surrounding large tech firms.

Shares of Facebook Inc. FB, -1.37%, Amazon.com Inc. AMZN, -0.59%, Netflix Inc. NFLX, -2.16%   all lost ground Tuesday amid a broader sell off momentum-driven growth stocks, as indicated by the 1.6% decline in the iShares Edge MSCI USA Momentum Factor exchange-traded fund MTUM, -1.48%  .

“The risk is that we get half-way through this rotation, stall out and are left with no momentum anywhere,” Delwiche said.

Meanwhile, concerns about the U.S.-China trade battle appear to have moved to the back burner for investors after being blamed for volatile market action in August.

China has reportedly offered to buy more American agricultural products in exchange for a delay in upcoming tariffs and the easing of a ban against doing business with Chinese telecommunications giant Huawei Technologies, according to the South China Morning Post. The report comes on the heels of comments by U.S. Treasury Secretary Steven Mnuchin, who told Fox Business Network Monday that he views renewed discussions with Beijing as a sign of good faith.

“The U.S. and China are due to meet next month, and according to Steven Mnuchin…the U.S. is prepared to do a deal, as long as it is good for the U.S.,” said David Madden, market analyst at CMC Markets UK, in a note. “The lack of hostilities between the U.S. and China is likely to keep stocks in their upward move.

The European Central Bank is expected to deliver additional monetary stimulus when its policy makers meet Thursday, though some officials have appeared to push back against expectations for an aggressive package of measures combining further interest-rate cuts with a new bond-buying program.

The U.S. National Federation of Independent Business on Tuesday said its small-business optimism index fell 1.6 points to a seasonally adjusted 103.1 in August, its worst showing since March.

The rate at which Americans quit their jobs hit an all-time high in July, the Labor Department estimated Tuesday, suggesting that workers are confident in the strength of the job market. Job openings fell slightly during the month, while layoffs remained at low levels.

Which stocks were in focus?

Investors were watching shares of Apple AAPL, +1.18%  after it held its annual fall roll-out event, where it introduced a new TV streaming service that will cost $4.99 a month and be free for a year to purchasers of new iPhone, iPad or Mac products. It also introduced a new video game service and a suite of new smartphones: the iPhone 11, iPhone 11 Pro and the iPhone 11 Max. Apple shares rose 1.2%.

Shares of Ford Motor Co. F, -1.26%  fell 1.3% Tuesday. Credit rating agency Moody’s Investors Service late Monday downgraded the auto maker’s debt rating to Ba1, the first rung of “junk,” or non-investment speculative grade, from Baa3, citing “considerable operating and market challenges” and predicted “weak earnings and cash generation likely as the company pursues a lengthy and costly restructuring plan.” S&P Global Ratings and Fitch Ratings have a BBB rating on Ford, which is two steps above junk, though have a negative outlook. As long as the company has two ratings above junk, it is eligible to stay in the biggest investment-grade bond indexes.

Shares of HD Supply Holdings Inc. HDS, -4.21%  lost 4.2% after the industrial distribution company reported a fiscal second-quarter profit that topped expectations but sales that missed, while also providing a downbeat outlook for the current quarter.

Shares in fast food retailer Wendy’s Co. WEN, -10.21%  fell 10.2% after announcing a $20 million plan to serve breakfast nationwide from 2020.

How did other markets trade?

Stocks traded mixed in Asia overnight Monday, with the China CSI 300 000300, -0.49%  falling 0.3%, Hong Kong’s Hang Seng index HSI, +1.75%  nearly unchanged and Japan’s Nikkei 225 NIK, +0.97%  rising 0.4%. In Europe, closed mostly higher, with the Stoxx Europe SXXP, +0.10%  advancing 0.1%

The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.69%  jumped sharply by 9.5 basis points Tuesday to 1.716% with both the 10-year and 30-year TMUBMUSD30Y, -0.74%  yields hitting one month highs.

In commodities markets, the price of crude oil CLV19, +0.85%  fell 0.5% to $57.55 after bearish EIA forecasts and ahead of an OPEC meeting on Thursday.

The price of gold GCZ19, +0.17%  fell 1% to about $1,496.10 an ounce. The U.S. dollar DXY, +0.02%  , meanwhile, rose 0.1% against a basket of its peers.

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