Nasdaq, S&P 500 and Dow Jones trade cautiously higher as rates fall

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The stock market is looking for firm direction after overcoming an overnight slump in futures, with some downside buying of megacaps portion.

The Nasdaq (COMP.IND.) +0.2%S&P500 (SP500) +0.1% and Dow (DJI) +0.1% are slightly up.

Rates are pulling back a bit, but the Treasury yield curve continues to flatten, with the 10-year yield falling to 2% and the 2-year yield down 1 basis point to 1.55%. The 2-year-old gained more than 20 basis points on Thursday.

Markets are showing a little more resilience after selling off Thursday on hawkish remarks from St. Louis Fed President James Bullard.

Fed funds futures are now calling for a half-point rate hike in March and there’s talk of a hike between meetings, something that hasn’t happened since 1994.

That would be a mistake because the markets would “smell blood” and conclude the Fed is panicking, Mohamed El-Erian told Bloomberg.

S&P sectors are mostly up, led by energy, while materials are lagging. Megacaps have reversed direction from pre-market and are now mostly in the green.

“Megacap tech stocks remain attractive, even with the recent rise in interest rates, due to strong operating cash flow, recurring revenue and broad moats around their business models,” said Richard Saperstein, CIO at Treasury Partners. “Recent earnings reports underscore the need for selectivity in the mega-cap tech stock space.”

“We avoid companies with negative cash flow and zero profitability. Our focus in the current market environment remains companies generating high cash flow.”

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