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Market Sentiment Mixed By Midday—Here’s What Matters

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Stock losses moderated by midday Thursday, as renewed virus fears are weighed against other positive factors. 

The S&P 500 was down 0.3% at noon after having fallen 1.7% in the morning. Big tech dragged the market lower while other sectors held up decently. 

Facebook  (FB) - Get Meta Platforms Inc. Report, Apple  (AAPL) - Get Apple Inc. Report, Amazon  (AMZN) - Get Inc. Report, Microsoft  (MSFT) - Get Microsoft Corporation Report, and Alphabet  (GOOGL) - Get Alphabet Inc. Report all fell around 1%. Investors had moved into these stocks because they largely elude recessions and have strong secular growth drivers. Recently, though, their earnings multiples have stretched as they’ve outperformed the broader indices in the past few weeks. This is weighing on the broader indices, as the group represents 20% of the S&P 500's market cap.  

As for Thursday's leading sectors, the Invesco Bank ETF  (KBWB) - Get Invesco KBW Bank ETF Report rose 2%. There were no real tailwinds for banks, but the index had been down for much of April, while broader indices rallied, suggesting some level of over-bearishness amongst investors. Energy Select Sector SPDR ETF  (XLE) - Get The Energy Select Sector SPDR Fund Report rose 0.5% as oil rose 3% to $26 a barrel, although rising oil prices weren’t enough to firm up strong market sentiment. 

On the bearish side, the Russell 2000, a major small cap index, fell 1.5%. Small caps often have heavy debt burdens and are sometimes highly economically sensitive, making them more volatile. A down market in small caps is a bearish signal on the economy and market. Industrials, another cyclical group, fell, with the Nasdaq Industrials index down 0.5%. Investors, accordingly, rushed into safety, sending the 10-Year Treasury yield down to 0.61%. Yields fall when prices rise. 

The fear currently is a reacceleration of coronavirus cases in what could be a premature reopening of several states. 

But investors are also sifting through a new $3 trillion fiscal spending package, which includes $500 billion to states, and more importantly provides another round of $1,200 per household. The last round already showed evidence of softening the negative impact on consumer spending. 

What investors need to see to believe in a sustainable bull market is a stabilization of coronavirus cases, but also a broad market rally that’s more bullish, according to a note from Bank of America Global Research. 

"The key confirmation of fresh market upside will be a broader rally, confirmed by high yield bond leadership and relative breakouts by small caps, value, and equal-weighted indexes,” the firm said. 

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