The equity market flipped into a risk-on posture by midday Wednesday, even as several headwinds to the economic recovery became apparent.
In the morning, big tech stocks were leading the market, with economically-sensitive stocks mixed and with more muted movements. By midday, the S&P 500 was up 0.85%, even as the mega-cap components of the tech-heavy Nasdaq, up just 0.25%, fell considerably from the morning. FAANG stocks, which account for about 25% of the S&P, were down about 1%. This speaks to Wednesday’s strength in value stocks, as large-cap cyclicals were on the rise.
That is usually accompanied by a rise in the 10-Year Treasury yield, as investors ditch the safe asset. Yields rise when prices fall. But the yield fell to 0.65%. Investors expect interest rates to remain low for years to come, even though the 10-Year yield is below inflation. Plus, many investors like pension funds and insurance companies must buy the asset, which is supporting its price, Dan Eye, head of asset allocation and equity research at Roof Advisory Group told TheStreet.
Oil was the only cyclical sector to fall Wednesday, with consumer discretionary, industrials, materials and banking all up. Banks rose more than 1%.
This comes even as net job adds for August were only 400,000, according to ADP, missing estimates of over 1 million. This points to a slowing economic recovery, especially as Congress fails to push across a new round of fiscal stimulus. Interest rates cannot fall much from here. Still, investment managers theStreet has spoken with, including Eye, have said their interest in value stocks, trading at incredibly cheap valuations both compared to growth stocks and to interest rates, has been piqued of late.
One growth stock that did get a fundamental boost Wednesday was Nvidia (NVDA) - Get NVIDIA Corporation Report. The $340 billion by market cap Nvidia rose 3.5% after announcing a new chip product for gaming. Analysts are raising their price targets, as the chip is not only additive to revenue, but potentially higher gross margin than other Nvidia products, a material positive for earnings.
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