Tech Earnings Boost Flimsy S&P 500: What Wall Street's Saying

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Tech stocks stole the show Friday in a bifurcated market. 

The S&P 500 rose 0.77%, pulled higher by the tech-heavy Nasdaq's gain of 1.49%. All cyclical sectors fell, consistent with the 10-Year Treasury yield's fall to 0.54%. It had hit an already-depressed 0.62% earlier in the week. 

Facebook  (FB) - Get Report, Apple   (AAPL) - Get Report, Amazon  (AMZN) - Get Report and Google  (GOOGL) - Get Report all beat revenue and earnings estimates handily. Even though their stocks were up considerably into earnings, they powered higher afterwards as well. Apple, Amazon and Facebook rose 10%, 3% and 8%, respectively. Apple beat iPhone revenue estimates by 19%, posting a $26 billion figure, as demand during the pandemic is largely strong, pointing to a solid 5G cycle. Amazon’s e-commerce business, especially given third quarter guidance, looks to be accelerated for at least the medium-term as a result of the at-home environment. Facebook and Google’s ad revenue trajectories look to be on paths of improvement, as marketing spend stabilizes along with the economy. Google gave limited forward-looking commentary and, after running up into earnings, the stock fell 3%. 

Big tech has a heavy weighting in the S&P 500. Cyclical value had a rough day. 

Oil, banking, industrials, consumer discretionary and materials all fell as much as 1.5%. Consumer spend for June came in at a 5% increase year-over-year, due to pent-up demand, economic stimulus and state reopenings. But that was just as the second wave of viruses and small business closures were beginning, prompting the need for a not-yet-implemented new round of fiscal stimulus. Interest rates can’t fall much from here. While the economy is recovering, it is recovering at a slower rate than in past months this year. 

For the week, bearish moves in the financial market were detected. According to research from Bank of America Global Research, investors moved $5.6 billion into cash, after several weeks recently of outflows, and $17.2 billion into bonds. Investors also moved $1.9 billion out of stocks. 

Here’s what Wall Street’s saying: 

Lindsey Bell, Chief Investment Strategist, Ally Invest on Tech Earnings: 

"The takeaway: Results show that market leadership from the big tech companies can remain intact. Tech Q2 earnings look relatively strong with an estimated decline of 3.9% (vs. -41.9% for the S&P 500). In addition, tech is one of the few sectors expected to report positive growth rates by the fourth quarter."

U.S. Equity Strategists, Morgan Stanley:

“Our survey of 2,000 U.S. consumers shows stabilization across most metrics. Concerns over COVID are beginning to fall in some states (California, Florida, Texas) but are rising in the midwest. Economic outlooks are also fairly stable and more respondents are also looking for new jobs. 

Scott Knapp, Chief Market Strategist, CUNA Mutual Group:

"Bond yields and TIPS are not confirming increased expectations for inflation, but that can change quickly. Even though we currently see no textbook signs of inflation, it can be easy to let recent history muddle our perception of the risk. We saw a similar landscape during the Great Recession, but inflation never took hold in spite of concerns that it would become an unintended consequence of then-unprecedented stimulus."

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