Value-Driven Dow, Outperforming Growth-Weighted S&P 500, NASDAQ Shortly after Opening

The major U.S. stock indexes are trading mixed but mostly under pressure early Tuesday with traders weighing the potential impact of restrictive Fed tightening against China’s move toward reopening the economy after implementing tough COVID rules.

With the focus on the Fed, interest rate sensitive growth stocks weighed heaviest, driving down demand for the tech-laden NASDAQ Composite the most. The S&P 500 Index is also lower with the technology sector exerting the most pressure on the benchmark index. Meanwhile, the Dow is being underpinned by demand for value stocks.

China Hopes to Revive Global Demand

U.S. investors were calling for a higher opening during the pre-market session after Beijing eased strict COVID-19 curbs. The restricted moves have battered the $17 trillion economy.

The easing, however, is fueling hopes of a revival in global demand and an improving supply chain. Also driving the optimism for a higher opening were strong performances in Asia and Europe.

Stocks in Asia rose as China officially announced overnight it will end quarantine for inbound travelers on Jan. 8 – symbolizing an end to its zero-COVID policy that it’s held nearly three years. In China, the Shanghai Composite rose 0.98% to close at 3095.57 and the Shenzhen Component gained 1.16% to 11106.50.

European stocks also moved higher overnight as positive sentiment continues in the final trading days of 2022.

Investors were looking for gains in Asia and Europe to lead to a much better performance in the U.S. market on the opening.

US Shares Showed Signs of Weakening as the Opening Bell Approached

The expected strong start to the U.S. equity trade began to fizzle as we approached the opening bell as rising U.S. Treasury yields raised concerns over the Fed’s plans to increase rates in 2023.

Rising Treasury yields put interest rate sensitive growth stocks under pressure, a recurring theme in 2022. For the year, growth shares have plunged over 30% compared with value’s slide of about 7.5% over the same period.

Economic News

On the economic front, the Commerce Department’s initial take on the U.S. goods trade balance showed the deficit narrowing by 15.6%, while S&P Case-Shiller showed home price growth in its 20-city composite cooled to 8.6% year-on-year, the lowest reading since November 2020.

Daily Forecast

The inability to follow-through to the upside following solid gains in Asia and Europe overnight should be of some concern for investors on Tuesday. Furthermore, it demonstrated that investors are discounting the potentially bullish news from China, while keeping the focus on Fed policy.

We expect to see many stops and starts this week since there are no major economic releases. Additionally, traders are expecting volume to remain below average until next week when the major players return.