Stocks rose Wednesday, even as several economic headwinds are taking hold. Importantly, it was high-growth tech stocks leading the market in early trading, while economically-sensitive stocks were mixed.
At 9:30 am EDT, the S&P 500 rose 0.4%, somewhat supported by the components of the tech-heavy Nasdaq, which rose 0.5%. The 10-Year treasury yield, which is lower than where inflation has run on a trailing basis, rose to 0.69%. The Federal Reserve’s new policy is highly inflationary, in theory. Still, the march higher in the yield suggests some optimism on the speed of the economic recovery.
The $340 billion by market cap Nvidia (NVDA) - Get NVIDIA Corporation Report rose 4% after announcing a new chip product for gaming. Analysts are raising their price targets, as the chip is not only additive to revenue, but potentially higher gross margin than many other Nvidia products, a material positive for earnings. FAANG stocks were also rising aggressively.
Negatively, the ADP jobs report showed private payrolls in August grew by 428,000. That’s against estimates of 975,000 expected from economists surveyed by FactSet. The jobs report, though, usually differs than the Bureau of Labor Statistics’ report out Friday, which investors take slightly more seriously. Still, this is a huge miss and points to a slowing pace of recovery in the economy.
It’s possible that business confidence is struggling. House Speaker Nancy Pelosi said on a phone call with Treasury Secretary Steven Mnuchin that Democrats in Congress are at odds with each other over the terms of a new fiscal stimulus bill. Interest rates cannot fall much from here and without more fiscal stimulus, small businesses may be less able to higher workers than they were over the summer. This threatens the speed of the economic and corporate earnings recovery.
Cyclical stocks were mixed, with oil and banking down a tick, but consumer discretionary up, in some cases, 1%. Airlines were mixed, with some in the red and some in the green. The decent risk sentiment in economically-sensitive areas of the economy may be a bit of a surprise to some Wednesday, considering the economic headwinds.
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