Stocks Crater After Multiple Headwinds: What Wall Street's Saying

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Stocks got hammered Wednesday in another sell-off led by tech stocks, but joined by other sectors.

The S&P 500 fell 2.37%, while the Nasdaq 100 fell 3.02%. The 10-Year Treasury yield fell just to 0.67% and is already below the expected rate of inflation, making it hard for more capital to move into safe bonds. Yields fall when prices rise. Crude oil fell 0.38% to $39 a barrel.

Investors have been re-rating growth tech valuations, as at-home and growth services like e-commerce and cloud may have seen massive amounts of pulled forward demand from later years. The Nasdaq 100 is down more than 12% since Sept. 2.

Economically sensitive stocks began the day in the green as several positive developments emerged. Manufacturing and service purchasing managers index’s showed September readings of above 53 (above 50 represents growth year-over-year). This is a positive read on the economy as it recovers. 

Also positively, Johnson and Johnson  (JNJ) - Get Johnson & Johnson (JNJ) Report said it is entering the final stage of its coronavirus vaccines trials and the stock rose 0.12%.

But new daily virus cases have been on the rise in September and the threat of new lockdowns loom. Meanwhile, monetary stimulus — which has sent interest rates to near rock bottom levels — can only boost markets and the economy so much. Struggling households and small businesses need cash they may not get from another round of fiscal stimulus, which Congress is dragging its feet on ahead of the election.

The result: consumer discretionary, manufacturing, banking and oil stocks all fell between 1% and 4%, with the smaller and more debt-laden stocks falling more than 5%.

Nike’s earnings  (NKE) - Get NIKE, Inc. (NKE) Report initially boosted cyclical stocks in the morning, as the company’s more than $10 billion for the quarter only fell 1% year-over-year, against analysts estimates of a more than 10% decline. This was a positive read for the consumer, but the revenue result was driven by an 82% pop in digital sales, while foot traffic was poor. It was the digitally-focused brands that traded well Wednesday. Nike and Lululemon LULU rose 8.77% and 1.01%, respectively.

Here's what Wall Street's saying:

Lori Calvasina, Chief U.S. Equity Strategist, RBC Capital Markets:

"The improvement in earnings sentiment in recent months helps explain why stocks have rebounded so sharply since March, but also raises the question whether momentum in this indicator will soon level off, challenging what has been a powerful driver of US equity markets. After collapsing in March, Institutional investor sentiment recovered to 2018 highs in August, but has started to weaken again. This negative shift in sentiment has coincided with the S&P 500’s recent choppiness in trading, which began after the new September 2 nd all time high in the index. Overall, the data raises the questions of whether institutional investor positioning in US equities has peaked again. Positioning in Nasdaq and Dow futures led the charge to the August highs and the recent retreat (pg 45). We will be watching this metric closely in the weeks to come. From a bottom-up perspective, multiples also look highly concerning. Virus trends are headed in the wrong direction again, and several alternative / high frequency US economic indicators also look concerning.”

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

“While we continue to expect near-term volatility, we do not see a marked change in the outlook for global stocks. Our view remains that we expect markets to move higher over the medium term, but that the path to a "more normal" environment is likely to be bumpy until there is greater clarity on factors like a vaccine and US politics. While an all-at-once approach to putting money into the market has historically worked best, we recommend using near-term volatility as an opportunity to build up positions for the long term. This can be done, for example, by embarking on a disciplined phasing-in strategy, or, when appropriate, using options or structured solutions.”

Kimberly Greenberger, Nike Analyst, Morgan Stanley:

"A faster first quarter fiscal year 2021 snapback and management's commitment to an accelerated digital transformation leave us incrementally bullish on NKE’s long-term prospects. NKE remains one of the few apparel/footwear companies better positioned post-COVID-19 and our bull case appears increasingly achievable. Stay overweight; lift price to $152."

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