Stocks rose slightly Tuesday, but weak risk sentiment was also found in other areas of the financial market.
The S&P 500 rose 0.36%, but without the help of tech stocks, it wasn’t able to pick up much steam, as the tech-heavy Nasdaq rose just 0.36% after being down most of the day. The 10-year Treasury yield fell to 0.5% from 0.55%. Yields fall as prices rise. This indicates bond investors see a slowing economic recovery from the pandemic-induced recession. Plus, bond fund managers told TheStreet that the bond market expects the Federal Reserve to increase its asset purchasing program if yields rise too much, keeping investors engaged in the bond market.
Cyclical stocks mostly rose, a bullish signal, although their valuations are low and earnings are beating estimates by wide margins. The only cyclical sector to fall was banking, down about 0.5%, as the yield curve continues to compress significantly.
Oil posted a strong day, with the Energy Select Sector SPDR ETF (XLE) - Get Report up 2.43%. Crude oil rose also 1.27% to $41.53 a barrel. BP posted a more than $6 billion net loss, in line with expectations, as oil prices are still too low for most companies to turn a profit. But BP shares spiked, as management said it is moving to a net zero-carbon business model by 2050. Plus, the company cut its dividend in half. The stock was down 21% since June 8 into earnings, as the virus spread and states paused reopenings. However, BP’s decision to shore up liquidity into an evolving overall strategy is a positive for the stock. The combination of low oil prices and a hint at what other oil majors may do is boosting oil stocks.
As for tech, the U.S. stock market seems to struggle when tech stocks take a breather, which they mostly did Tuesday. Tech stocks have an incredibly heavy market weighting in the S&P 500. Growth tech, including mega-cap names, can power through economic headwinds and right now, investors are worried that without more fiscal stimulus and interest rates unable to fall from here, paused state reopenings may slow the recovery. Recently, only about 35% of S&P 500 stocks have beaten the index, according to data from Columbia Threadneedle Investments. That’s for an unspecified period of time. That number represents a 20-year low, with the high being 65% before 2000.
Here’s what Wall Street’s saying:
Team, Columbia Threadneedle Investments:
"The rally in equities since March has been impressive, but it’s been driven by a small number of stocks.Finding companies that can outperform becomes an even more valuable skill in narrow markets like we’re seeing now. A purely passive approach could expose portfolios to a large number of stocks that are underperforming the index as a whole."
Jay Sommariva, Director, Fixed Income, Fort Pitt Capital Group to TheStreet:
“We are being hesitant. There does have to be some sort of fiscal stimulus. They [Federal Reserve] can continue to buy securities and put money into the system for as long as they want. They could actually increase it. But they want the fiscal side of it to pitch in.”
Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank:
"Call it a market rally, or a stock market inflation, the global equity markets are poised for more gains on hope that more stimulus would support economies, or at least the stock prices.”
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