U.S. stocks closed mildly lower on Tuesday, recovering from sharp morning losses as investors found some relief from a slight recovery in bonds. (Tweet This)
"Obviously the bond market led action this morning," said Quincy Krosby, market strategist at Prudential Financial. It's a "continuation of the rollercoaster ride we had last week. In the absence of market-moving data the market has been subject to these (bond) swings."
She noted some support from corporate dealmaking.
In an unexpected morning announcement, Verizon is buying AOL for $50 per share or $4.4 billion in cash, with AOL CEO Tim Armstrong continuing to lead the company after it becomes a wholly owned Verizon subsidiary. The Internet firm surged more than 18.6 percent on the news, while Verizon closed down 0.4 percent.
"Typically (deals are) supportive of the market but right now we're fighting some pretty big macro trends," said Art Hogan, chief market strategist at Wunderlich Securities, referring to the global selloff in bonds.
The Dow Jones Industrial Average failed to hold slight gains in afternoon trade after recovering from a 180-point plunge in the open. The Nasdaq also gave up attempts to advance, while the S&P 500 never broke into positive territory and traded just below the flatline.
"The turnaround on the rise up in yields certainly has a positive effect on the loss we saw in equities," said Robert Pavlik, chief market strategist at Boston Private Wealth. "Really the selling (in bonds) is begetting more selling. People know there's a real possibility interest rates are going to move up this year."
"If you're a long-term investor I would not be worried about interest rates because they're not going to be moving sky-high this year," he said.
Yields gave back gains after reaching multi-month highs on Tuesday morning, staying within a range. The benchmark 10-year Treasury bond yield traded near 2.26 percent after touching a 6-month high of 2.366 percent. The 30-year bond yield held near 3.02 percent after reaching a 6-month high of 3.06 percent.
"The bond volatility is going to continue for a while, at least until the next Fed meeting as people try to get their arms around" the timing of a rate hike," said JJ Kinahan, chief strategist at TD Ameritrade.
The rapid decline in yields after touching highs Tuesday morning signaled a peak in the 10-year for some analysts.
MacNeil Curry, global head of technical strategy at Bank of America Merrill Lynch, said he was looking for a top between the 2.305 and 2.328 percent zone on the 10-year yield. "That was the zone we were looking for because it was the top of the channel from the January highs of 2014. This whole downtrend started back in January, a year and a half ago," he said.