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Stocks Surge as Consumer, Oil Drives Market: What Wall Street’s Saying

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Stocks finished Wednesday strong after the Federal Reserve released its April minutes. The market was driven by optimism on the consumer and oil prices. 

All three major U.S. indices rose considerably, with the S&P 500 up almost 1.7%. The yield curve n the 2 year and 10 year treasury bonds contracted, a sign that, as investors buy up longer-dated bonds, inflation and economic growth expectations aren’t exactly soaring. 

Lowe’s  (LOW)  beat earnings and revenue estimates, posting revenue growth of 11%, driven partly by strength in its online offering. The company said it has been deemed an essential business, highlighting that when consumers get out, they are spending, partly aided by the recently monetary and fiscal stimulus. 

The S&P 500 consumer discretionary index didn’t rise as much as the S&P 500, but the gains of 1.4% was strong. 

Along with optimism on the consumer, oil rose 5% to almost $34 a barrel, key for oil producers looking to stave off bankruptcy and keep people employed. Major oil ETF  (XLE)  rose 3.9%. 

Part of the positivity was the hope of continued state reopenings. New York is on track to open in mid June with heavy restrictions. Virginia wants to open Virginia beach at 50% capacity. Investors, while buying stocks in certain sectors, are wary that a premature reopening process may cause a second wave of Coronavirus infections

The Federal Reserve’s April minutes mention as much, but also said that monetary and fiscal stimulus efforts are aiding employment and consumer spend, which Wall Street hopes will bridge the gap between the lockdown phase on the recovery. 

Here’s what Wall Street said:

Mike Loewengart, Head, Investment Strategy, Etrade:

"There is tremendous pressure on the Fed’s most critical barometer of jobs and inflation. And the Fed is increasingly concerned about the downstream effects the pandemic has on the most powerful driver of the economy—the consumer. And while the Fed’s stimulus packages along with the CARES Act have given the economy a bit of a boost, they’re not afraid to lean on what’s left in their toolkit for more fiscal support. When it comes to any rate action, the Fed remains persistent in the fact that the current range is appropriate to help weather recent events—going against the grain of global central banks who are powering down to negative rate territory."

Commodities Strategist Team, UBS:

"The return of energy and base metal demand should allow market surpluses to shrink rapidly. Inventories are set to peak in 3Q and to decline thereafter, especially crude oil. We expect the energy sector to lead the recovery with a spot price increase of 40% by the end of the year. The run up in energy prices, mainly crude oil, follows the record decline in prices and reflects our view that the oil market will be balanced in 3Q and in deficit of nearly 4 million barrels per day in 4Q. The prospects of greater-than-expected oil supply adjustments by voluntary production cuts by OPEC and its allies (OPEC+) and large involuntary production and capital expenditures cuts due to low prices in North America may come as demand improvements become more visible in 2H. This clearly hinges on lockdown measures being eased quickly and oil producers (i.e., OPEC+) staying disciplined until oil demand is largely restored.”

Dave Iben, Chief Investment Officer, $3.1B Kopernik Global Investors to TheStreet:

“There will be a lot of retailers and gas and oil companies that go under. We try to focus on the ones [oil companies] that are trying to survive that. That’s the time to buy the beta [high volatility stocks] — when they fall 95% [from all-time highs]. We’ve done a lot more selling than buying [in May]. Our cash levels, which were close to 0%, are now at 10%.” 

Todd Lowenstein, Equity Strategy Executive, Union Bank: 

"One of the biggest debates in markets is what shape will the ultimate recovery will look like after an unprecedented global event and the fallout of the government’s response to the crises itself. Our best judgment suggests the recovery path will look like an elongated U-shaped pattern in the best case scenario but even more likely is another square root-shaped pattern. Georgia and other states reopening will be key to watch to determine what the new normal will look like nationwide and how the government will balance health risk vs. economic risk (which are not mutually exclusive – there continues to be a health risk associated with 25% employment).” 

Matthew Harrison, Head, Biotech Research, Morgan Stanley:

“In the United States, the overall development of the virus remains in line wit our models. However, as cases have remained at the peak longer than expected, ous predicted total infections has risen somewhat to roughly 1.9 million to 2 million from 1.8 million last week. We believe the increase is driven by the persistent expanding test numbers and a prolonged peak compared to other countries where outbreaks had been contained with more strict lockdowns.” 

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