Stocks open flat as Wall Street struggles for a direction

Stocks opened lower on Wednesday as the market struggled for direction for a second day amid rising rates, political uncertainty and a still raging pandemic.

Stocks open flat as Wall Street struggles for a direction

Stocks opened flat on Wednesday as the market struggled for direction for a second day amid rising rates, political uncertainty and a still raging pandemic.

The Dow Jones Industrial Average dipped 31 points, or 0.1%. The S&P 500 hovered just above the flatline and the Nasdaq Composite climbed 0.2%.

Traders digested the latest inflation-data release, as the U.S. consumer price index rose 0.4% in December. That was in line with a Dow Jones estimate.

Stocks rose in the first week of 2021, but have since stalled out. The market closed little changed on Tuesday. Meanwhile, the yield on the benchmark 10-year Treasury briefly traded at 1.18%, its highest level since March. Year to date, the benchmark rate is up more than 20 basis points.

Given the rise in rates, Credit Suisse recommended that investors favor pro-cyclical sectors, including financials and energy. Rising rates could hurt growth stocks, however, which have been the market stalwarts during the pandemic.

Expectations for additional fiscal stimulus is one of the reasons behind the steady move higher in yields. President-elect Joe Biden is expected to release details on his economic plan on Thursday.

"At a minimum, even a USD 500bn fiscal package consisting of additional stimulus checks, extended unemployment benefits, and funding for healthcare and vaccine disbursement will be another boost to economic growth in 2021," noted Jason Draho, UBS Global Wealth Management head of Americas asset allocation.

Following Tuesday's muted session, the major averages remain lower for the week. The Nasdaq Composite is the relative underperformer, down roughly 1%. Small caps are, however, a bright spot, and the Russell 2000 is up more than 1% so far this week.

The moves come as turmoil in Washington continues. Vice President Mike Pence said Tuesday night he will not remove President Donald Trump from office. That came before the Democratic-held House approved a resolution urging Pence and the Cabinet to push Trump out of the White House after he incited last week's riot on the Capitol.

The House of Representatives plans to vote on Wednesday to impeach Trump for a second time.

Covid cases also continue to increase in the U.S. and abroad. The U.S. is recording at least 248,650 new Covid-19 cases and at least 3,223 virus-related deaths each day, based on a seven-day average calculated by CNBC using Johns Hopkins University data.

Still, many say the U.S. is poised to return to growth later this year.

"In 2021, the U.S. economy should experience strong tailwinds from additional fiscal and monetary stimulus coupled with an end to the pandemic's impact on the economy," said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management. "Pent-up demand in industries impacted by COVID-19 ... and a needed inventory rebuild should further spur job growth," he added.

Taken together, Schutte said this sets the stage for above-average economic growth, and he sees stocks climbing to new highs.

—CNBC's Jacob Pramuk contributed reporting.

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