Stocks largely rose Thursday, but weak sentiment was under the hood.
The S&P 500 gained 0.64%, but only on the strength of the tech-heavy Nasdaq, which rose 1%. Bearishly, the 10-Year Treasury yield fell to 0.54%. It’s been pressured of late, mainly on weakened inflation expectations.
The mega-cap NYSE FANG Index, home to large and powerful companies with secular growth trends that investors like exposure to during economic uncertainty, rose 1.57%.
Jobless claims for the past week beat estimates, coming in at 1.19 million against estimates of 1.4 million. But for almost 2 months now, the claims number has been humming at over 1 million per week after having fallen hard in April and May. States have paused reopenings and more stimulus is needed for job creation. The Federal Reserve’s lending facilities had worked their charms for jobs in May, while low interest rates had done the same. But rates are near rock bottom. And low rates are also already priced into stocks. More fiscal stimulus is needed for the real economy and for the path towards pre-virus levels of earnings growth.
And while the economically-sensitive large cap consumer discretionary sector rose 0.24%, all other large cap cyclicals fell. Within consumer discretionary, airlines rose as President Trump said he would support another round of $25 billion in government aid. American Airlines (AAL) - Get American Airlines Group, Inc. Report rose 3.82%. Banking fell 0.41%, as the yield curve remains pressured. Oil and materials also fell.
Here’s what Wall Street is saying:
Mike Loewengart, Head Investment Strategy, E*Trade:
"With the trajectory of the recovery still unclear, today’s numbers highlight the uncertainty in the labor market. And with stimulus talks in Washington still volleying for an answer to the unemployment problem, the future is clouded. While any positive momentum is definitely welcomed, let’s keep in mind we’re still far way from pre-pandemic levels."
Brian Price, Head, Investment Management, Commonwealth Financial Network:
"Global equity markets will continue to focus on progress related to a vaccine as well as continued monetary and fiscal support. The rally in risk assets has certainly been appreciated by investors but I think that some market participants would welcome a rotation away from Tech and consumer names like Amazon. The narrow breadth of the market is a little concerning and I think that investors would have more confidence if there was a rotation to cyclically oriented sectors like Financials, Industrials, and Energy. A lot of technology companies have benefited from consumers staying at home over the past several months and I expect that many will continue to deliver strong earnings results in the coming quarters. However, I think it would be healthy for the market if we started to see broader participation from other value oriented sectors.”
Ryan Detrick, Chief Investment Strategist, LPL Financial:
"Yes, technology is probably extended in the near-term, but when you look at how strong earnings and guidance have been from the group, you realize there’s a reason the Nasdaq is at 11,000 and why eventual continued strength is quite likely.”