Markets Lukewarm Tuesday While Fed’s Powell Speaks

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Stocks were teetering between being in the green and red Tuesday, as Federal Reserve Chairman Jerome Powell testified before the Senate Banking, Housing and Urban Affairs Committee. Meanwhile, investors were moving into safe assets. 

Stocks were largely flat, with the S&P 500 hanging around the 2,955 level, which it has struggled to surpass since the coronavirus broke out in March. The tech-heavy Nasdaq rose about 0.5%, as investors continue to favor growth stocks or value, a slightly bearish signal. The safe 10-Year Treasury bond saw its yield move down to 0.71%. Yields fall when prices rise. Gold, another safe-haven asset, rose 0.5%.

Some cyclical stocks rose as well as some defensive stocks.

All this comes as Powell speaks to Congress. His words, during a time at which investors are figuring out the timing and speed of an economic recovery, ring loudly. In the past week alone, his comments have sent stocks both reeling and soaring on separate days. However, Powell said nothing that seemed to materially impacted the market Tuesday. 

Stocks are at fairly full valuations compared to interest rates and investors are awaiting further developments on the economy and earnings. 

On the earnings front, Walmart  (WMT) - Get Report beat revenue and earnings estimates handily, as shoppers rushed for groceries and essentials in the first quarter. Walmart shares rose roughly 1%. Consumer staples peers Target  (TGT) - Get Report and Costco  (COST) - Get Report rose as much as 0.5% and 1.9%, respectively. 

Holistically, data out from Bank of America Global Research shows that a net 68% of investors surveyed by the firm think the current stock rally off the March 23 low is a bear market rally, a bearish signal on the market. And a net 75% of investors think the economy will recover gradually, not sharply, contrary to the economic bullishness stocks are pricing in. 

Equity managers TheStreet has spoken with say they’ve been marginal net buyers of stocks, not large buyers, as stocks have continued to rise in the past month. 

Bank of America also says investors are holding fewer risk assets, including stocks, as a percent of total portfolios, compared to historical averages. Materials, energy and industrials are particularly out of favor with fund managers, who are holding far more bonds, cash, and healthcare stocks than they have historically. These are defensive assets, signifying that while riskier or more cyclical assets may have upside, investors are positioned in a way that reflects the expectation of poor economic fundamentals. 

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