Stocks rose sharply Thursday, in a rally featuring broad sector participation. Strong job gains spurred the largely positive sentiment, but many on Wall Street are flagging the virus as a threat to the economic momentum.
All three major U.S. indices rose Thursday, with the S&P 500 up 0.45%. Strangely, the 10-Year Treasury yield slipped to 0.67%. The yield usually expands when investors see strength in the economy and therefore sell the bond. Yields fall when prices rise.
Jobs data showed 4.8 million added in the U.S. for June against estimates of 3 million. The unemployment rate fell to 11.1% in June from 13.3% in May, another guidepost pointing to a fast recovery.
While tech stocks lead the major indices, cyclical sectors participated, a risk-on signal. Energy, consumer discretionary and industrials all rose between 0.4% and 1%. Banks only rose about a tenth of a percentage point, as the yield curve compressed some.
But coronavirus cases have been surging since mid-June and at least 12 states have paused reopening plans. Some reports say 40% of the country is pausing those plans. Lockdowns are a bigger fear in the market than a mere pause of reopenings.
A team of Goldman Sachs equity analysts, across sectors, compile a weekly and highly technical score of the level at which the economy is reopened. Considering trends in retail, travel and restaurants, Goldman’s reopening scale fell by about 3% week-over-week.
Should stocks have some near-term downside, stimulus may blunt that downside. Not only is the Federal Reserve pumping liquidity through all areas of the bond market, but a fresh round of fiscal stimulus, which can get cash into the hands of small businesses and households directly, looks promising. President Donald Trump said he would like to see another direct payment to households. The House has voted to extend the Paycheck Protection Program for all businesses, which includes forgivable and low interest loans on the condition of retaining employees. This would provide yet another bridge to when any potential lockdowns end, a bridge that seemed to have worked the first time around before reopenings.
Notably, the NYSE FANG Index, which has a heavy market cap weighting in the S&P 500 rose 1.36% as investor interest in quality growth stocks that can power through cyclical headwinds remains strong.
The iShares PHLX Semiconductor ETF (SOXX) - Get iShares PHLX Semiconductor ETF Report rose 1.22%, lead by $100 billion Qualcomm QCOM, the largest component of the fund. Qualcomm (QCOM) - Get QUALCOMM Incorporated Report rose 2.33% to $91.87 a share, as analysts at Canaccord Genuity raised their price target to $115 from $102. The analysts said Qualcomm is positioned to take market share in the 5G device market and raised revenue and earnings estimates for the next two years.
On the holistic picture, here’s what Wall Street’s saying:
Ryan Detrick, Senior Market Strategist, LPL Financial:
"This [jobs report] is yet another sign that our economy is coming back faster than nearly anyone expected. The spike in COVID -19 cases could slow things down some going forward, but for now, the stock market only cares about one thing and that is the reopening."
Seemah Shah, Chief Strategist, Principal Global Investors:
“The US government cannot claim victory just yet. High-frequency data suggests that the labor market strength had started to wane later in the month, perhaps as households and businesses grew increasingly cautious about the rise in infection rates. Indeed, now, with the closings having been reversed or paused across 40% of the US, July’s job report may paint a much weaker story.”
Pete Essle, Head, Portfolio Management, Commonwealth Financial Network:
"The economy added 4.8 million jobs in June, the largest on record. The vast majority of the gains came from the service sector, specifically leisure and hospitality, which made up one-third of the total gains in June. The spigot that was quickly turned off on the payrolls front in March has swiftly been switched back on, as evidenced by this morning’s report. There is, however, a cautionary thread to be considered. There’s been a resurgence in COVID cases in the last week and many establishments have been ordered to close as a result. The closure’s, along with unwilling patrons to return to close-quarter establishments, may weigh on the payrolls numbers in July’s release. It’s evident that a second COVID wave has formed and national case totals continue to rise, surpassing March highs. Investors should take note and consider whether the next three months will show the same level of exuberance as the last.”
Team, Goldman Sachs Equity Research:
"New this week: Reopening scores decline in aggregate for the first time after 9 weeks of steady improvements as COVID-19 cases rise and over 40% of the US places reopening on hold. we see the first reversal in the rate of progress towards normalization across the aggregation of data covering “Stay at Home” (food delivery, eCommerce, streaming media, grocery sales, etc.) and “Back to Normal” (commuting, box office, travel, etc.) categories. While things continue to vary widely on a state-to-state basis (see: State-Level Coronavirus Tracker: June 30), high frequency data across a number of micro data points has begun to reflect shifting consumer behavior and more restrictive policies in some states with increasing COVID-19 cases.”
Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:
“Our Survey of 2,000 U.S. consumers shows the virus concerns are rising again with election concerns. Confidence in the broader economy is modestly weakening but outlooks for personal finances continue to show stable to improving trends.”