U.S. stock indices were mixed Thursday, pointing to bearishness on the speed of the economic recovery, despite an encouraging signal from jobs data.
The S&P 500 fell 0.2%, supported by the tech-heavy Nasdaq’s rise of 0.27%.
The 10-Year Treasury yield spiked to 0.72% from 0.67% and from 0.5% less than a week ago. Yields rise when prices fall. But that’s not signaling bullishness on the speed of the recovery and inflation. The Treasury Department is issuing tens of billions of dollars of new long-term bonds, putting supply pressure on the price of treasuries. But bonds investors expect that, if the cost of borrowing remains elevated for too long, the Federal Reserve will increase the size of its asset purchasing programs to keep rates low. That’s supportive of stocks, but reflective of an economic environment in need of stimulus.
The positive news Thursday: Jobless claims for the past week came in at 963,000, beating estimates of about 1 million and improving over last week’s reading of 1.19 million. For almost two months, weekly claims were above 1 million as the economic recovery had begun to stall. This reading shows the recovery has picked up again.
The negative news: fiscal stimulus talks are breaking down. The roughly $1 trillion bill has not yet passed. Meanwhile, states have paused reopenings and businesses are suffering. Job creation and a speedy economic rebound into 2021 hinges somewhat on this stimulus.
Cyclical stocks fell. Consumer discretionary, large cap industrials and large materials fell no more than 0.5%. But oil and banks fell more than 1.5%, each. Bank stock investors are aware the yield curve may be artificially expanding this week and that rates will be pressured until certainty on the economic rebound emerges.
Lyft (LYFT) - Get Report fell more than 5% after it met on top line estimates and posted a narrower-than-expected net loss. The company says it can reach profitability on schedule even if rides and revenue remain at lower levels than pre-pandemic levels. But the current slow pace of the rebound in rides and revenue is keeping investor sentiment at bay, as 2021 revenue projections are looking somewhat questionable.
Here’s What Wall Street’s saying:
Mike Loewengart, Head, Investment Strategy, E*Trade:
"The stalemate in Washington certainly looms large, and it’s unclear how long the market will tolerate the impasse.”
Mark Haefele, Chief Investment Officer, Global Wealth Management, UBS:
"After a gain of 51% for the S&P 500 and a 49% rise for global stocks since the March lows, many investors are nervous about the potential for the market to rally further. According to the American Association of Individual Investors weekly survey, only about 23% of US investors expect the stock market to go higher over the next six months, which is near an all-time low since the survey began in 1987. Adding to investor nervousness, the rally has been built on relatively narrow foundations, with the top six US tech giants accounting for a large share of the gain in the S&P 500 this year. But we see further upside for equities in our central and upside scenarios and suggest several key ways to position for the next stage of the recovery."
Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:
"We have maintained our 3400 yearend target for the S&P 500 several months now and just because the market is closing in on our forecast there is no rush to upgrade. Although the economic data continues to show the economy continues to recover at a healthy clip despite the well-publicized state level roll backs, it appears that the more gradual reopening of the economy continues despite all the doom and gloom. Today’s weekly claims and continuing claims data support our assessment that once the initial bounce was over the economy quickly retreated to a more shallow but sustained upward trajectory. We have repeatedly asserted that the consensus recovery/ expansion trajectory was too optimistic and this is one of the reasons why we have set out two parameters which have to be meet before were lift our year end call for a second time since the March debacle. We will wait on the data before altering out call. At 3400 the market has already returned to the highs experienced before the Covid-19 dislocations were imposed on the economy. If we do upgrade our call it will probably be a measured increase 3%-6% reflecting the success pf policy to keep global deflation pressures from becoming entrenched domestically.”
Scott Knapp, Chief Market Strategist, CUNA Mutual Group:
"Given the large difference between expectations and actual results in the July jobs report, and the relatively good corporate profits we’ve seen in the S&P 500 despite immense difficulty, I think the markets could be anticipating a reacceleration in economic growth. Some caution is still prudent – until we see that this is more substantial than the head fake we got in early June, diving in to follow this trend with reckless abandon is risky."