Risk-on sentiment was decent but less present by the end of the day Tuesday, compared to the beginning of the day. Several developments are weighing on the minds of investors.
The S&P 500 rose 0.5%, down from its morning gain of 0.85%, as the tech-heavy Nasdaq rose just 1.2%, down from an earlier gains of 1.45%. The 10-Year Treasury held dropped to 0.67% from 0.69% earlier in the day. The Federal Reserve met Tuesday, but seems unable to provide additional positive guidance to markets from what has already been provided.
For tech, Apple (AAPL) shares were up 2% in the morning, but when management unveiled underwhelming technological tweaks to its Apple Watch 6 and mentioned little in the way of the newest iPhones to hit the market this year, the stock dipped, taking some steam out of the broader technology indexes and funds. The stock ended the day up just 0.16%.
For cyclicals stocks, most of those sectors were up earlier on in the day, before most fell. The S&P 500’s early gain was highly dependent on big tech.
Oil stocks were up 1% to start the day, before falling 0.9%. The IEA dropped its oil demand forecast for 2020 to 92 million barrels per day and also issued a lowered 2021 forecast, citing a slow economic recovery. For 2020, the organization only lower its demand forecast by a bit less than 1 million barrels per day. Still, the forecast challenges the narrative that the currently fast pace of the recovery will continue, though crude oil prices rose more than 2%.
Recent economic data, while painting a mixed picture of the speed of the economic recovery, haven’t been enough to dissuade investors from the broader narrative of the V-shaped recovery and the IEA is making a small adjustment, although its words are damning.
Consumer discretionary stocks, trading at incredibly rich valuations, fell after having risen. Those stocks are trading at roughly 1.5 times the average stock on the S&P 500, against a 15-year average of 1.1 times. There was positive employment and consumer data out fro Europe, but that wasn’t enough to move the needle on consumer stocks in the U.s.
Banks fell as the yield curve compressed.
Manufacturing stocks rose slightly on positive manufacturing data from China.
Here’s what Wall Street’s saying:
Tony Dwyer, Chief Market Strategist, Canaccord: Genuity:
“The 7% correction in the S&P 500 over the past six trading sessions is likely the first of a few 3-7% drawdown followed by new highs as the market stair-steps higher like the fall of 2009, driven by election year angst and the extended nature of the market cap weighted indices."
Market Haefele, Chief Investment Officer, Global Wealth Management, UBS:
"Investors are not expecting dramatic headlines on monetary policy this week, despite the fact that several central banks are holding meetings. After the European Central Bank (ECB) kept policy unchanged last week, we expect little movement from this week's gatherings, which include the US Federal Reserve, Bank of Japan, and the Bank of England as well as the central banks of Indonesia and Taiwan. With policy rates at or below zero in most major economies, central banks clearly now have less room for maneuver in terms. of rate cuts."
Michael Sheldon, Chief Investment Officer, RDM Financial to TheStreet:
"There are headwinds and I wouldn't be surprised to see a little profit taking right now heading into 2021. Valuation levels are either full or expensive depending on the number you’re looking at. Going forward, we are at the early stages of a new economic expansion. Over the next 12 to 24 months, we’re likely to see stronger GDP and corporate profits. It’ll be important for corporate profits to continue recovery or expanding.”
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