Stocks Soar, Led By Tech: What Wall Street’s Saying

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Stocks soared Thursday, in a rally led by big tech. Wall Street seems cautious on the near-term. 

All three major U.S. indices rose Thursday, with the S&P 500 up 2.2% and the tech-heavy Nasdaq up 2.8%. Investors moved away from safety, sending the 10 year treasury bond up to 0.61% from 0.57%. 

Oil prices rose 20% to almost $14 a barrel, a trend that can help the economy recover post virus-induced recession, which the market has priced in. 

Investors have gone through bouts of camping out in big tech’s secular growth drivers, some of which can allude the negative impacts of a recession. Facebook  (FB) - Get Report rose 6.7%, with Microsoft  (MSFT) - Get Report and Google  (GOOGL) - Get Report both up 3.8%. Facebook’s ad revenue is vulnerable to falling ad spend as consumers spend less on brands. Microsoft’s cloud business is expected to mostly benefit from the work-from-home trend. Google’s ad revenue is in the same boat, although Google does have a growing cloud business. 

The market is pricing in more of 2021 earnings than it is 2020. Here’s what Wall Street has to say: 

Mike Loewengart, Head, Investment Strategy, E*Trade:

"Activity in the oil market is proving just how mercurial it can be. Oil continues to take centerstage but this morning it’s for different reasons as tensions with Iran return. While contracts are back in the green, make no mistake this is still far from covering basic drilling costs and overhead. More importantly, the longer-term implications of the current oil crisis have yet to be fully realized—putting increased pressure on oil and gas earnings and the energy sector overall. As with many things lately, we’re in uncharted territory. There are still more questions than answers when it comes to tangibly bringing the economy back to life again. Until the path becomes clearer, volatility is likely the name of the game as the market weighs the good, bad, and ugly of this pandemic and decides which to sink its teeth into.”

Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS:

We believe distortions in oil markets are likely to contribute to volatility in equity, fixed income, and foreign exchange markets. Energy companies have been material issuers in US high yield (HY) and investment grade (IG) credit markets, and further troubles for the oil sector could have potential spillovers in related industries. the recent period of extreme dislocation in the oil US market should pass in the second half of the year. We therefore do not see the volatility in the oil market derailing the medium-term outlook for credit. In our view, credit and equity markets had already moved to price in a weaker outlook for oil prior to this week's disruption. As such, we believe the broader fallout on credit and equity markets is likely to be contained."

Jeff Buchbinder, Equity Strategist, LPL Financial: 

"All about guidance and scenarios. With so many companies pulling their outlooks, analysts and strategists forecasting in this environment have had to do some guessing. Given the uncertainty, investors will be looking for help developing credible scenarios depending on how long the stay-at-home orders remain in place. Every country and state is in a different place, increasing forecasting difficulty. We expect a strong second-half economic rebound, supported by massive fiscal and monetary stimulus, to help support a recovery in corporate profits. We also acknowledge uncertainty introduces downside risk. Playbook [investing playbook] Suggests near-term caution. For tactical investors, we believe patience is prudent here. We believe stocks have come too far, too fast and that a 5–10% pullback may be likely. Historically, patterns following prior bear market lows support this view.” 

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