Investors seem ready to move forward with buying stocks after a rough week-and-a-half. Several developments and dynamics jolted stocks higher Monday.
The S&P 500 gained 1.27%, with the tech-heavy Nasdaq back to outperformance mode, up 1.87%. The 10-Year Treasury yield was essentially flat at 0.68%. That can almost be viewed as a bullish move.
Recently, on days when economically-sensitive stocks rise, treasury yields tend to slip. Pension funds merely looking to match liabilities are buying treasuries, while the Federal Reserve — as part of its wide-ranging stimulus program — is a massive buyer of treasuries. So a flat move on the yield indicates some incremental pause in price appreciation, as investors grow more comfortable with the currently fast economic recovery.
One new development on the vaccine front fueled the positive sentiment Monday, as Pfizer (PFE) - Get Report CEO Albert Bourla told a reporter over the weekend his company may be approved to begin distributing a coronavirus vaccine near year’s end. Pfizer shares rose 2.61%, as the revenue and earnings impact from the vaccine would be meaningful. The market is taking Bourla’s comment seriously, ass seen by Pfizer’s price action. Cyclical stocks like restaurants, airlines, oil, banks and manufacturing all rose between 1% and 3% Monday.
Value stocks are beginning to trade at stretched valuations compared to interest rates, but some do say that the expectation of lower rates for longer — not just in treasuries, but also on cash and savings — is keeping investors appetite for risk strong.
As for growth tech, which is less sensitive to the economic cycle, investors were buying the dip. With the Nasdaq still down just above 9% from its Sept. 2 level, money is flowing back into the sector. A minor valuation re-rating — not like that seen in late 2018 — had taken place, as demand secular growth services like could, streaming and e-commerce has accelerated in the at-home environment so much that many fear massive amounts of demand is being pulled forward from later years in valuations.
Aside from this song-and-dance, the $300 billion by market cap Nvidia (NVDA) - Get Report rose 5.8% after announcing it is acquiring Arm holdings from SoftBank for $40 billion. The deal, in cash, stock and a $5 billion earn-out, is “immediately” accretive to earnings, most analysts say. But Nvidia bought Arm, a strong player in smartphone chips, for 20 times expected sales, a lofty valuation.
Here’s what Wall Street is saying:
Chris Larkin, Managing Director, Trading and Investment Product at E*Trade:
"There is a fair amount to digest coming off of a weekend of deal machinations and vaccine progress. As US stocks attempt to rebound from their first two-week losing streak in more than four months, we’re seeing futures point to the positive.”
Dan Ives, Tech Analyst, Wedbush Securities:
"The last few weeks have seen general softness in tech stocks as investors continue to worry that FAANG names and the tech sector have created valuations tough to justify with tech bubble talk abound. While the rally over the last six months has been parabolic, we believe transformational fundamental growth drivers across the tech sector and a further re-rating of tech stocks looking ahead continue to make us bullish heading into year-end. While there are some white knuckles among investors, we believe tech stocks could still go another 20%-25% higher led by FAANG names, cloud software, and cyber security. In a market starved for growth the secular growth themes around the tech sector are unprecedented and not comparable to anything I have seen as a tech analyst on the Street for two decades, with the COVID backdrop accelerating growth stories by 1-2 years in many cases. Green light to own tech stocks despite pullback fears."
Stacy Rasgon, Semiconductor Analyst, Alliance Bernstein:
"Nevertheless we have to sort of admire the boldness of the action; we're inclined to grant the benefit of the doubt. NVDA indicates they will maintain Arm's neutral, open-licensing model. That being said, if they can pull it off NVDA's dominance will be extended into virtually every important compute domain which has undeniable strategic value, giving the company the opportunity to potentially differentiate along that path through ownership in ways that they could not if they were simple licensees.”
Jason Pride, Chief Investment Officer, Private Wealth, Glenmede:
"Recent market performance has partially corrected the outsized relative gains from growth stocks. While growth stocks have delivered idiosyncratic earnings gains, they may carry excess risk due to extended valuations. Persistent value stock performance leadership may be predicated on a return to “normal”.”
Brian Nick, Chief Investment Officer, Nuveen to TheStreet:
"I’ve got the overall market being somewhat cheap compared to the treasury market. By sector, I’ve got every sectors trading at fair value against cash. Generally, savings rates are high, consumer confidence is okay. People will spending money on these things [retail, apparel, food].”
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