Stocks rose considerably on Monday, a move led by the part of the market that sells off when news flow around the coronavirus is negative. Many on Wall Street are focused on the medium to longer-term trajectory of the market, while many also note that the near-term looks choppy.
The S&P 500 rose 1.47%, with the tech-heavy Nasdaq up 1.2%, aiding the S&P 500’s gain. Still, the 10-Year Treasury bond saw its yield slip to 0.64%. Yields fall when prices rise.
Early in the day, large cap tech stocks and the S&P 500 were pressured, as major brands threatened to take ad spend away from Facebook (FB) - Get Report and other platforms, although the losses in the ad-centric giants quickly became gains.
Monday’s news flow didn't bring much in the way of positivity. The 5-day moving average of daily new coronavirus cases in the U.S. was at 38,000, lower than the 45,000 seen days ago but still above April’s trend. This is according to data from Johns Hopkins. And 12 states are now halting reopening plans, three of which include California, Texas and Florida.
Data from Opentable shows that the declines in seated diners year-over-year is beginning to trend negatively in the past few weeks after several months of lessening contractions, according to checks from RBC Capital Markets’ U.S. Equity Strategy team.
Yet it was the 'reopening stocks' that outperformed significantly Monday. United Airlines (UAL) - Get Report rose 7.24%. Darden Restaurants (DRI) - Get Report rose 5%. The S&P 500 Equal Weight Consumer Discretionary Index rose 3.44%. Some other cyclical sectors tied to these industries, like energy, got a boost. Oil ETF (XLE) - Get Report rose 1.34% and some say the bankruptcy filing of Chesapeake Energy (CHK) - Get Report will take meaningful supply out of the oil market, enabling crude oil to gain 2.73% to over $39 a barrel.
Long-term, an economic rebound, even if interrupted by another round of lockdowns, means stock gains a year-plus out. And short-term, stock valuations have come down slightly, but are still slightly vulnerable to the lockdown fears asset prices have begun to reflect. Those valuations are also a bit high compared to where interest rates may be, should the economic rebound continue.
Here’s what Wall Street’s saying:
Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:
"We expect valuations to come down by 10% as next-twelve-months EPS [estimates] rises by close to 20% over the next year, leaving 10% upside for the S&P 500. With the multiple e bit elevated we see rebounding earnings as the primary driver of upside over the next year. We assume multiple contraction is more than offset by strong growth in the next twelve month earnings as sales and operating leverage drive earnings.”
Tony Dwyer, Chief Market Strategist, Canaccord Genuity:
“The market is likely to remain in a period of consolidation marked by increased volatility as it digests the historic gains off the COVID-19 low…and works through a historic shutdown and reopening. The combination of incredible monetary stimulus that is likely to continue for the foreseeable future and the subsequent credit market and liquidity improvement allows us to move out 2021 SPX operating EPS to $165/share in 2021 (was $150). We continue to expect a 20x P/E multiple.”
Lori Calvasina, Head, U.S. Equity Strategy, RBC Capital Markets:
"We are keeping a close eye on restaurant booking trends from Opentable and small business activity. Both were showing clear signs of improvement in April and May, supporting the rebound in the US equity market. But trends at the national level have turned choppy (in the case of restaurant bookings) or started to stall (in the case of small business activity) more recently. Deteriorating trends have been seen in the states/major metropolitan areas that are starting to see a rapid pick up in new coronavirus cases.”
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