Stocks rose Tuesday, with the market showing a clear risk-on posture. More evidence that coronavirus vaccines are soon to hit the market emerged, while the direction of U.S. and China trade took another incremental step forward.
The S&P 500 rose as much as 0.35% just before the open, before that gain moderated a touch. The tech-heavy Nasdaq fell as much as 0.2%, before that loss moderated a touch. Tech stocks have a heavy market cap weighting in the S&P 500, so the losses were holding the S&P back from further gains. The 10-Year Treasury rose to 0.69% and has risen significantly in the past few days, as investors are growing more confident in the economic recovery into 2021.
One positive story line enabling that confidence: coronavirus vaccines may be soon to hit the market. AstraZeneca (AZN) - Get Report said in a press release it is now testing its vaccine. The stock rose 0.85%. The company is just one of many large ones to say it is nearing the final stages of a vaccine.
Cyclical sectors did the leg work Tuesday, a bullish signal. Consumer discretionary stocks like restaurants, airlines outperformed, although some of those fell to a flat-to-down move in early trading, while tech still faltered. Banking stocks rose more than 1%, as the yield curve has expanded this week.
As for tech, Apple (AAPL) - Get Report was down 1% to around $499 a share. The stock is now trading at almost 30 times earnings, against earnings growth estimates according to FactSet for the next few years of roughly 8%. Still, analysts have recently had their discourse on why the stock isn’t overvalued, with some noting that Apple’s recurring revenue model in its growing services business can uphold the valuation.
Also, U.S. and Chinese officials said they are sticking by their sometimes questionable commitment to uphold to their phase one trade agreement. Still, Bank of America Global Research analysts say the majority of companies intend on restoring manufacturing operations to the U.S. and other counties to reduce country risk.
This pressures cost structures, as labor in China is incredibly cheap. Bank of America says this will pressure free cash flow and return on equity, or earnings as a percentage of net assets, but that companies are willing to accept that negative if it means more supply chain stability.