Stocks fell and risk sentiment was down Tuesday, even as economic and political tailwinds emerged. All five of the biggest losers on the Dow Jones Industrials Average were cyclical stocks.
The S&P 500 fell 0.5%, while the tech-heavy Nasdaq fell 0.1% and the Dow Jones Industrial Average fell 0.64%. The 10-Year Treasury yield dipped meaningfully to 0.64% from 0.66%.
Here were the tailwinds met with substantial headwinds:
The House proposed a $2.2 trillion fiscal stimulus bill that surprisingly includes $1,200 stimulus checks for households, $600 weekly unemployment benefits and $120 billion in relief for the restaurant industry. Investors had not expected that size of a bill either. Still, many small businesses and households may be already headed for bankruptcy after having weeks of no income amidst an economy still unable to full reopen.
Secondly, consumer confidence hit a reading of 101 versus economists expectations of 89 for the month of September. Still, large cap consumer discretionary stocks fell more than 1% by noon Tuesday. The defensive consumer staples sector held in with more strength, down just a few tenths of a percentage point.
Many investors worry that, with a rising count of new COVID cases in the U.S. and states unlikely to continue reopening aggressively, the pace of the economic recovery could slow, which could dent earnings short-term estimates. Strategists at Morgan Stanley say S&P 500 positive earnings revision estimates have outpaced negative ones in the past few weeks, a trend investors are worried will not hold true. Plus, more fiscal spending potentially needed in 2021 may not come to fruition if Democrats cannot — and likely will not — control Congress by a wide margin.
The strategists at Morgan Stanley also say questions over the counting of election ballots are creating market uncertainty and a bad mood amongst investors. “Uncertainty has rarely been higher financial markets,” wrote Morgan Stanley’s Mike Wilson, chief U.S. equity strategist.
Here were the 5 biggest losers on the Dow Jones Industrial Average as of noon:
Oil is highly cyclical, as are banks, which are also experiencing a pressured yield curve, even as the Federal Reserve lays off of controlling the yield curve. It is still buying long-term treasury bonds to keep borrowing costs low, weighing on bank profitability.
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