Markets Were Worse Than They Looked Thursday: What Wall Street's Saying

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Risk sentiment was nowhere to be found Thursday, as modest gains in tech stocks made the sell-off look garden variety, rather than harsh. 

The S&P 500 fell 0.56%, while the tech-heavy Nasdaq rose 0.53%. The 10-Year Treasury yield fell from 0.67% to 0.60%. Yields fall as prices rise. 

Weekly jobless claims came in at 1.3 million, better than expectations of 1.4 million. Usually, when contractionary economic data like Thursday’s jobs report shows an improvement week-over-week, which this report did, stocks rise. 

But that wasn’t the case Thursday. 

Daily new coronavirus cases hit 58,000, according to Johns Hopkins data. The record hit this week was 60,000, compared to a high of 35,000 hit in April.

Stocks sold off on virus headlines in June, but cyclical sectors, especially those most vulnerable to lockdowns and recessions in general, have been stable in the past week. That’s partly because investors see evidence from the White House and Congress that more fiscal stimulus could be on the way, which is likely needed to supplement the current monetary stimulus programs. That’s especially crucial if lockdowns become a theme again. 

Thursday, investors moved into a new class of safe stocks: large cap growth tech stocks that have strong balance sheets and secular growth drivers that can power through economic headwinds. 

The NYSE FANG Index, which has a heavy weighting in the S&P 500 rose 1.47%. Without this gain, the S&P would have fallen much harder than it did. 

Microsoft  (MSFT) - Get Microsoft Corporation (MSFT) Report shares rose as much as 2%, before moderating to a 0.7% gain to $214 a share, as Wedbush Securities analysts raised their price target by 18% to $260. Wedbush sees even stronger-than-expected demand for Azure, one of the company’s most prominent cloud products, as enterprises have employees work from home. This group of stocks is seeing near-term earnings estimates revised upwards as well as slight earnings multiple expansion. 

But large cap oil, consumer discretionary, industrials and banking all fell between 1.8% and 4.9%. Large and regional banks mostly fell more than 2% and 3%, respectively, as the yield curve compressed significantly. Crude oil also fell 45% to $39.49 a barrel. 

Here’s what Wall Street’s saying:

Mike Loewengart, Head, Investment Strategy, E*Trade: 

"Positive momentum when it comes to jobs is nothing if not a good thing, but let’s keep in mind that while firings have slowed we’re still at an extremely elevated level. And not all sectors have been hit the same—with airlines, retailers, and hospitality announcing unprecedented furloughs, the overall labor market is still anemic. Amid a pandemic that continues to spread here in the US, we should take any seemingly positive jobs read with a massive grain of salt.”

Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance:

"The economy continues to heal and workers are being recalled at a quicker pace, but the economic damage has been deep and more needs to be done in order to help close the gap that’s been created by the lockdowns. The market has been looking ahead for months and has so far been correct in calling the peak of the economic damage and quicker than expected recovery, but as valuations climb, risk increases as well. We’re cautious on the current levels of the index, but expect a rotation within the index to take place with some of the companies that haven’t participated in the rally beginning to move higher while most of the leaders of the current rally to slow the pace of their increase.”

David Miller, Chief Investment Officer, Catalyst Capital Advisors to TheStreet: 

“People are just seeing COVID numbers going back up and there’s concern that this virus is going to stick around a lot longer. All the cyclicals are getting hit. Seems like a pretty clear shift between sectors. There’s definitely some randomness to it. There are just certain days where there’s a very clear shift between cyclical stuff and secular growth stories."

Jasper Lawler, Head, Research, London Capital Group: 

"Tech shares led to gains [or blunted losses] on Wall Street due to a heavy weighting. That has almost become a signal of weaker investor sentiment about the economy, especially as cyclical stocks like airlines sink. The arguably weaker sentiment follows the USA reaching 3 million cases and a record 62,000 cases in one day. 

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