Stocks climb in an oversold bounce, but the path to new market highs is murky, strategists say

Published Wed, Jan 12 20223:43 PM ESTUpdated Wed, Jan 12 20229:58 PM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

The S & P 500 has bounced back from its sell-off in the first week of 2022, but market strategists are uncertain whether this rally will stick. The strategists say they are closely watching the course of Treasury yields and the upcoming earnings season for clues on market direction. Stocks began a comeback from their decline late Monday , and they have largely been on the rise since then. "From an S & P 500 perspective, we're still in a pretty large trading range which hasn't changed yet," said Frank Cappelleri, executive director at Instinet. "I think we still have to wait and see. We've seen fake breakouts, and we've seen fake breakdowns over the last few weeks. Because of that, traders are hesitant to trust some of the moves we've seen over the last few days." The S & P 500 closed up 0.3% at 4,726 .The Nasdaq Composite gained 0.2%, while the Dow Jones Industrial Average was up 0.3%. Tech was particularly hard hit during the sell-off, with the Nasdaq temporarily touching a nearly 10% trough Monday from its recent highs. Tech and growth have been tethered to moves in the 10-year yield, which made a dramatic move higher in the first trading days of the year. After ending 2021 at 1.51%, the 10-year yield topped 1.8% Monday before falling back, according to FactSet data. The yield, which moves opposite price, was at 1.73% Wednesday. Rising yields, or interest rates, have a bigger impact on growth and tech stocks that investors buy for their future earnings strength. A constructive bounce back, but will it stick? Cappelleri said the bounce back in stocks has been constructive. "We see the response the beaten-up tech sector can have even when there's just a little pause in rates. I think more important is to see what happens when the 10-year yield continues higher. That's the test. It's not the direction, it's the pace," he said. Cappelleri said it will be a positive if some of the more beaten-down tech names can show good earnings gains, when the companies report over the next couple of weeks. But while technical strategists agree that the 10-year Treasury yield could have an important impact on the market, they don't all agree on whether the stock market is out of the woods or not after the new year sell-off. "Be non-committal," said Katie Stockton, founder of Fairlead Strategies. "There's bee