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Dow rises 200 points to record Tuesday, but Nasdaq sheds 1% as higher rates divide the market

CNBC logo CNBC 1/3/2022 Tanaya Macheel
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The Dow Jones Industrial Average rose for a second day to start 2022 as investors bet on the kinds of stocks that would benefit from a robust economy this year despite the omicron threat.

But a continuing spike in bond yields to start the new year caused investors to rotate out of tech stocks, sending the Nasdaq lower. Losses in tech shares that were big winners last year like Nvidia and Tesla weighed on the broader market.

The Dow rose 214.59 points, or about 0.5%, notching a record close of 36,799.65 and hitting an intraday record earlier in the session. The S&P 500 also reached an intraday record, but was held back somewhat by tech losses. It ended the day down 0.06%, falling to 4,793.54. The Nasdaq Composite shed 1.3% to 15,622.72 on the losses in tech shares.

Investors this week have been betting the economy could overcome the latest surge in Covid cases, which  topped 1 million in the U.S. That optimism boosted interest rates and divided the stock market on Tuesday.

On the winning side in the session were stocks like banks, which stand to benefit from the rise in rates. JPMorgan Chase, American Express and Goldman Sachs were among the biggest gainers in the Dow.

Caterpillar and other stocks linked directly to the economic recovery also boomed. Energy shares like Occidental Petroleum rose 7.4% and Coterra Energy added 6.9%. Halliburton shares jumped 6% as crude prices rose and Morgan Stanley upgraded the oil services company.

Ford Motor was the biggest gainer in the S&P, up 11.6% after the company opened orders this week for its F-150 Lightning electric pickup truck, which it had previously shut down due to an overwhelming response. The company also announced plans to nearly double its production plan to 150,000 annually.

On the losing side in the session were tech names with high valuations as investors rotated out of that sector as rates increased. Tesla, fell 4.1% after jumping 13% on Monday and ending 2021 with a roughly 8.5% gain. Nvidia fell Tuesday by 2.7%. Cloud companies CrowdStrike and Okta lost 4.6% and 3.4%, respectively.

Bond yields jumped for a second day as investors digested growing evidence that the omicron variant of Covid-19 may be less of a material drag on global growth that many initially anticipated.

"We believe there is further upside for stocks, despite a strong run so far," wrote JPMorgan equity strategists led by Mislav Matejka in a note Tuesday. "The new variant is proving to be milder than the prior ones."

"We continue to see gains for earnings, and believe that consensus projections for 2022 will again prove too low," they added.

Elsewhere, cruise operators continued their rebound, with shares of Carnival Corp, Royal Caribbean and Norwegian Cruise each rose more than 1%. Airline stocks were also higher as part of the reopening trade.

The major averages rose Monday to start the new year, with the Dow and S&P 500 notching record closing highs. The Nasdaq also gained more than 1% Monday, led by Tesla's jump and Apple climbing. The iPhone maker on Monday became the first company to reach a market cap of $3 trillion.

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