Stocks fell Wednesday, in a sell-off led by tech stocks. Still, cyclical stocks were largely pressured as Congress' fiscal stimulus bill was unveiled.
The S&P 500 fell 0.65%, pulled down by the tech-heavy Nasdaq’s loss of 1.27%. Bearishly, the 10-Year Treasury yield slipped to 0.59%. Yields fall when prices rise.
The NYSE FANG Index fell 1.64%. Sky-high tech valuations into earnings reports this week are turning the stomachs of investors of late. Already, several big tech names have seen their share prices fall considerably after earnings, as the accelerated growth trends from the at-home environment may not be as sustainable as previously thought. Plus, Facebook (FB) - Get Facebook, Inc. Class A Report and Google (GOOGL) - Get Alphabet Inc. Class A Report both fell more than 1.4%, as cyclicality in the advertising business is beginning to be appreciated by investors.
Most large cap cyclical sectors, like oil, banking, industrials and materials were down, some of them as much as 2%, Tuesday. But consumer discretionary held up, pinching out a gain for most of the day, until negative momentum to end the day pulled the sector into the red slightly.
Republicans revealed their $1 trillion stimulus bill that would include cutting the $600 weekly unemployment supplement down to $200 a week, and sending $1,200 payments to most Americans. Some investors may be concerned this is not enough to support consumer spend and hold the consumer over until a vaccine emerges. Consumer confidence, pressured of late, may not see a jolt as unemployment remains elevated. Consumer confidence fell in July and missed expectations. And investors had been worried about the political will for a sufficient bill.
Moving against these slight negatives, 70% of S&P 500 companies have been beating sales estimates, against the 5-year average of 56%, according to data from UBS equity strategists. And recent data show that a strong majority of companies are also beating on the bottom line as well. This means the trough in earnings is likely in for the year, a clear positive for the market. But most companies are not issuing guidance and are issuing fairly negative commentary on the near-future, as states are not fully opened and the virus continues to spread. Stimulus will help, as it did in the first half of the year, but the road to a full recovery is dependent on the virus and a vaccine.
Here's what Wall Street's saying:
David Lefkowitz, Head, Equities, Americas, UBS:
"As we've discussed, it's clear that the worst is over for corporate profits. However, the pace of the recovery is still contingent on the path of the virus and further government stimulus. Positive developments on the vaccine front in recent weeks are encouraging. By October or November, we should know if the three promising, leading vaccine candidates are effective at preventing COVID-19. But in the near term, investors are focused on what the next fiscal package may look like. In our view, this will be very important as a number of companies have called out how government support has been crucial to the recovery and businesses anticipate that more will be needed.”
Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank:
"It is worth noting that downside risks prevail as the tech earnings could have been hit by a sharp drop in advertisement revenues in the second quarter."