The S&P 500 closed flat Tuesday, struggling for direction as an energy-led jump in value stocks was offset by weakness in tech and healthcare.
The S&P 500 fell 0.05%, the Dow Jones Industrial Average was up 0.14%, or 46 points, and the Nasdaq Composite slipped 0.1%.
Energy jumped 4% as U.S. oil prices rose to their highest levels since October 2018 on bets of increasing energy demand after OPEC and its allies reportedly agreed to raise production by about 450,000 barrels per day starting July.
Financials, mostly banks were boosted by a rise in Treasury yields, which tend to boost the interest income earned by banks.
JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC) were up more than 1%.
The strong start to the shortened trading week for cyclicals comes as investors continue to bet the economy has plenty of room to grow.
"Strong economic growth prospects lead us to a cyclical bias. We favor the Communication Services, energy, financials, industrials, and materials sectors," Wells Fargo said.
But some, however, have cautioned against making overly bullish bets that a strong economy will lead stocks higher.
"Last year, we had this big divergence between what was happening in the economy, and what happened in the stock market," Phillip Toews, CEO & Portfolio Manager of Toews Asset Management said in an interview with Investing.com on Tuesday. "I think that's worth paying attention to, because there's not necessarily a correlation between a growing economy and a rising stock market."
The broader market, meanwhile, could also have a difficult road ahead if the ongoing rotation from growth to value continues to keep a lid on tech amid an overvalued market that has been driven by momentum.
"We're overvalued … the focus should be on valuations, and they're high," Toews added. "Ultimately, if tech does suffer and turn into a bigger bear market that will draw the rest of the market lower."
Apple (NASDAQ:AAPL), and Google-parent Alphabet (NASDAQ:GOOGL), traded lower, while Amazon.com (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Facebook (NASDAQ:FB) were mixed.
Tech will continue to be driven by expectations about U.S. government bond yields amid an ongoing debate on whether inflation is transitory.
The Federal Reserve has maintained its stance that the factors driving the spike in inflation is transitory, but some market participates including Allianz (DE:ALVG) chief economic advisor Mohamed El-Erian warned again Tuesday that the Fed is behind the curve and could ultimately be forced to rein its accommodative monetary policy measures more aggressively and sooner than many expect.
"I would agree with El-Erian that capacity issues and supply shortages are all signs of classic inflation," Toews added. "Normally, the Fed was very concerned about making sure they were in front of it [inflation] and they're not now." "The Fed is so used to weighing in on trying to support the economy, that maybe they're not balancing that enough on the other side of equation [in terms of inflation] which is one of their mandates."
Healthcare, meanwhile, was dragged more than 1% lower by a slump in Abbott Laboratories (NYSE:ABT), Thermo Fisher Scientific (NYSE:TMO) and Danaher (NYSE:DHR).
Johnson and Johnson fell more than 2% after the Supreme Court rejected the company's appeal seeking to overturn the $2.1 billion damages claim over allegations that its talc powder products, including baby powder, causes cancer.
The Reddit meme trade, meanwhile, picked up from where it left off last week, led by a 23% surge in AMC Entertainment (NYSE:AMC) even as the theatre chain sold 8.5 million common shares to Mudrick Capital Management, raising about $230.5 million.
In other news, Cloudera (NYSE:CLDR) jumped 24% after private equity firms KKR and Clayton Dubilier & Rice agreed a deal to buy the company for about $5.3 billion.