Market messaging was mixed Wednesday, amid several developments, positive and negative.
The S&P 500 rose 0.57%, but the 10-Year Treasury yield fell to 0.59%.
Tech stocks were mostly pressured. The NYSE FANG Index, which has been flying high for most of June and July, as investors see at-home growth trends accelerating sustainably, fell 0.18%. Big tech earnings are rolling in and Netflix (NFLX) - Get Report and Snapchat parent company Snap (SNAP) - Get Report already fell 10% and 6%, respectively, after earnings. The poor tech performance held the S&P 500 back from further gains.
Supporting the S&P 500 was the NYSE Healthcare Index, up 0.82%.
Cyclical sectors, those that perform well during economic optimism, were mixed. Large cap consumer discretionary, materials and industrials were up between 0.75% and 1%, while oil and banking were down about 1%. Consumer discretionary activity has trended poorly of late, and still showing massive declines year-over-year as virus cases climb, although the stocks in the sector are trading at cheap-to-fair valuations as earnings roll in.
Investors were weighing clear positives and clear negatives.
On the vaccine front, a deal has been struck between the U.S. government and Pfizer (PFE) - Get Report and BioNtech (BNTX) - Get Report, in which the government will supply $1.5 billion to the companies for producing a free COVID vaccine. The two companies say they can manufacture hundreds of million of doses within months from now and $1 billion by end 2021. Pfizer rose 5.10% and BioNtech rose 13.72%.
Negatively, the U.S. ordered China to close its consulate in Houston, citing interference with American intellectual property. China said if the U.S. does not reverse its decision, China will respond firmly. Intellectual property theft is a hot button issue between the two countries and the White House has frequently blocked Chinese companies from buying U.S. semiconductor products that contain sensitive software. More broadly, the spat is reflective of the fact that a trade deal between the two countries is unlikely and escalated aggression seems more likely.
Here’s what Wall Street’s saying:
Mike Loewengart, Head, Investment Strategy, E*trade:
“While prospects of a new spending bill may counter some negative sentiment, the market doesn’t always move in one direction. The decidedly more cautious tone from the Trump administration on the coronavirus front could be giving the market pause, because although the administration may in fact only now be saying what many Americans already feel, it can be unnerving to have it vocalized nonetheless. Coupled with rising tensions with China, there is enough out there for some investors to want to sit out for a round or two.”
Ken Berman, Strategist, Gorilla Trades:
"While we got another batch of positive earnings reports, this time from the healthcare sector, the resurfacing trade worries have been holding back risk assets in early trading. In another sign of escalation between the U.S. and China, the State Department ordered the closure of the Chinese consulate in Houston, triggering an immediate backlash from the Asian giant.”
Kimberly Greenberger, Department Store Analyst, Morgan Stanley:
“We expect Traffic to Oscillate between -40% and -50% until concerns of rising U.s. coronavirus cases ease. Total discretionary retail traffic declined 46.5% year-over-year in the second week of July, a slightly worse result than July week one’s -44.9%."
Randy Swan, Founder, Swan Global Investments:
"We believe there is a very good chance that this market will head back into bear territory late this year or early in 2021. The impact of a new wave of COVID-19 shutdowns, spotty corporate earnings and the uncertainty associated with November’s election are variables that could drag on the market either separately or in unison. The recent news out of California, which has an economy on par with many developed countries, does not bode well for the consumer service and hospitality sectors in Q3 and this year. On the general corporate earnings front, there continues to be a disconnect between real earnings and profitability – at some point multiples will reset once the federal government spends all of its bullets."