Midday Market Update: What's Holding Stocks Back

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Stocks were mixed by midday Friday with the major indices down after positive coronavirus vaccine developments. Other factors, though, are weighing on stocks.

The S&P 500 fell 0.2%, dragged lower partially by a dip in big tech, as the NYSE FANG Index fell almost 1%. The 10-Year Treasury yield took a breather, falling a bit to 0.84%. Yields fall when prices rise. The yield was at 0.71% about a week ago, but investors are increasingly optimistic about the economic outlook.

Positively, Gilead Sciences  (GILD) - Get Report announced the Food and Drug Administration has approved its remdesivir coronavirus treatment for use. The stock rose 1%.

Moderna  (MRNA) - Get Report said its phase three trial for its coronavirus vaccine is moving along, as the company enrolls thousands of patients. The stock rose as much as 1.5% before falling more than 1%. Biotech analysts at Morgan Stanley say several questions regarding the efficacy of tests remain. The authorization would be emergency use. “The operation warp speed trials impose a higher bar for the primary efficacy endpoint,” wrote Morgan Stanley biotech analyst Matthew Harrison in a note.

In the absence of fiscal stimulus for the time being, and with small businesses not fully reopened, widely distributed vaccines would act as its own economic stimulant. The economic recovery has been speedy all year but has slowed down as of late. Investors are generally confident that the next year or so will see a return to normalized economic activity.

Moderna’s share price decline Friday suggests investors are not entirely convinced the vaccine will be ready in full so soon, which could explain the broader market’s more modest trading compared to the morning. Economically-sensitive stocks like consumer discretionary and banking were up a few tenths of a percentage point, while oil was down. Manufacturing stocks were flat to up a touch as the purchasing managers index showed a reading above 50 again (above 50 indicates year-over-year growth in activity). Advancing stocks on the New York Stock Exchange did outnumber decliners by midday, by a ratio of 5-4.

But the up-move in most stocks was not aggressive. One other factor holding stock gains back: rising bond yields reduce the attractiveness of equities and pressure valuations, which must be weighed against the positive economic fundamentals the market is pricing in. 

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