Dow and S&P 500 retreat from record high at open following extended rally

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stocks held steady on Tuesday as the market’s blistering rally in February took a pause.

The Dow Jones Industrial Average and the S&P 500 were little changed after a six-day winning streak. The Nasdaq Composite rose to hit a new intraday record high. Facebook and Netflix rose more than 1% each, while Microsoft and Alphabet also traded in the green.

The Russell 2000 rose to another record high, extending a strong rally in the new year. The small-cap benchmark has surged more than 16% in 2021, beating the S&P 500′s 4% gain, as investors piled into beaten-down value names.

Investors could be taking some chips off the table following a strong rally boosted by optimism for a smooth reopening amid the Covid vaccine rollout. Cyclical sectors, which had outperformed in recent weeks, led the declines. Energy fell , paring its month-to-date gains to 10%. Financials and materials were also lower.

“The market has been pricing in the reopening optimism, and in the short term that may be able to keep us grinding higher,” said JJ Kinahan, TD Ameritrade’s chief market strategist. “What worries me a bit is if the reality of the economy will live up to the expectations. The expectations are just so high that you wonder when we get there, what’s next for us.”

Bank of America said a market correction could be on the horizon as the recent runup has shown signs of overheating, but it will be a buying oppotutinity for equity investors.

“We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and ‘as good as it gets’ earnings revisions,” Jared Woodard, investment and ETF strategist at Bank of America, said in a note.

Lawmakers in Washington appear to be moving closer to another economic relief bill. House Democrats on Monday unveiled the details of a relief proposal that included $1,400 direct checks with faster phase-outs than previous bills. Many believe additional stimulus could help drive the stock market higher.

“The outlook for stocks continues to get more positive in the near term, plain and simple,” Tom Essaye, founder of Sevens Report, said in a note. “The stock positive formula of Massive (and unwavering) Fed support + Massive new fiscal stimulus + COVID declining and vaccine distribution ramping up is becoming more real, and stocks are rallying as a result.”

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