Midday Market Update: Stocks Watered Down By Consumer Confidence

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Stocks were mixed by midday Tuesday, with the market showing less of a risk-on posture than in it did in the morning. A positive development on a coronavirus vaccine was met with a weak consumer confidence reading. 

The S&P 500 was flat to down about 0.1% by midday. The tech-heavy Nasdaq, after having fallen in the morning, was flat to up a touch. Tech stocks have a heavy market cap weighting in the S&P 500, so the gains were keeping the S&P from falling even further. 

Bullishly, the 10-Year Treasury rose to 0.69% and has risen significantly in the past few days, as investors do have reason to believe the economic recovery is on track to lead into a strong 2021. The yield is currently below where inflation has been running at of late, so some selling of the bond isn’t necessarily ill advised. 

One positive story line enabling that confidence: coronavirus vaccines may be soon to hit the market. AstraZeneca  (AZN) - Get Astrazeneca PLC Sponsored ADR Report said in a press release it is now testing its vaccine. The stock rose 0.85% in the morning, before the gain faded, as the stock was essentially flat by midday, still outperforming the broader market. 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 morning, a bullish signal, one that faded after the poor consumer confidence reading hit the wires. The reading for August came in at 84, against economist estimates of 93 and lower than July’s reading of 91. Economic data — and earnings for that matter — have largely shown an aggressive trend in the direction of pre-virus levels, but the trend has been choppy, especially of late. A surge in virus cases in June has hurt some backward-looking data points, while a new fiscal stimulus bill won’t be passed until at least September. This puts consumer spend and the economic recovery on hold, as unemployment still sits at 10%. 

Large cap Consumer discretionary stocks like restaurants, airlines rose in the morning, before falling 0.5% by noon. 

As for tech, Apple  (AAPL) - Get Apple Inc. (AAPL) Report was down 1.7% to around $494 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 re-shoring 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. 

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