S&P 500 Rose Monday: What Wall Street's Saying

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Stocks were mixed Monday, but risk sentiment was strong.

The S&P 500 rose 0.27%, even as the tech-heavy Nasdaq fell 0.39%.

Bullishly, the 10-Year treasury yield rose to 0.58%. Yields rise when prices fall. It’s a true risk-on signal when treasury yields eke out a gain during a time in which bond investors expect the Federal Reserve to increase the size of its asset purchasing program in the event that yields rise meaningfully.

While the NYSE FANG Index, which has a heavy market cap weighting in the S&P 500, fell 0.72%, Twitter  (TWTR) - Get Report rose 0.83%. Twitter is reportedly in preliminary talks to buy Chinese-owned social media company TikTok. Twitter may have a hard time financing a deal, with only $9 billion in cash to buy a company said by some analysts to be worth as much as $50 billion. Microsoft MSFT, which fell 1.99% Monday, may find it far easier to beat Twitter in the sweepstakes.

The White House says it will ban TikTok from operating in the U.S. if it is not bought by an American company. The Trump administration is focused on disabling Chinese entities from obtaining U.S. technology and intellectual property.

Large cap cyclical sectors ran up so much Monday that the S&P 500 was able to gain. Oil, banking, consumer discretionary, industrials and materials all rose 1% to 3%. Bank stocks are finally benefiting from an expanding yield curve.

A fiscal stimulus bill, stalling in Congress while small businesses and households suffer, is expected to be finalized in the near future. But for now, President Trump is signing executive orders authorizing the federal government and states to grant a total of $400 per unemployed person in benefits. This, while less than the $600 in weekly payments seen earlier this year, could bridge consumer spend to a vaccine later. Some are concerned the executive orders are unconstitutional. Still, investors are encouraged by the recent fiscal stimulus-related developments.

TheStreet's Jim Cramer called Trump's executive orders that call on assistance from states "a shame." He said, "We know that this is directed to punish the profligate states."

Also boosting stocks are earnings reports beating estimates across sectors. Earnings estimates for 2021 are also rising slightly, supporting the narrative of a fast recovery and supporting stocks at their current multiples.

Here’s what Wall Street’s saying:

Lori Calvasina, Chief U.S. Equity Strategist, RBC Capital Markets:

"Upward revisions to 2020 & 2021 EPS growth expectations continue to inch up, as 2Q reporting season starts to wind down. Fiscal stimulus talks in Washington are key, as earlier rounds clearly helped stabilize consumer spending. In the aftermath of the Financial Crisis, the stock market learned not to get too worked up about missed and delayed deadlines for important Congressional actions. Still, the stock market ’s lack of response to the breakdown in talks between Democrats and Republicans on extending unemployment insurance, among other pandemic relief items, is a bit puzzling since consumer spending clearly stabilized when the CARES Act was passed and trends only began to improve when payments were made (page 46). The improvement in consumer spending (as tracked by credit card data) has clearly stalled, as have most of the high frequency alternative economic indicators that we track.”

Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:

"A trio of reasons to worry has the market questioning the recovery … From the March lows, cyclicals/small caps followed the typical recession playbook, leading the market. From June 8 though, most stocks have been in a consolidation due to a trio of worries – a new COVID case spike, concerns about a potential Blue Sweep, and the looming fiscal cliff. But we remain convinced the recovery narrative is intact … We view these real concerns as bumps along the road of what we believe should ultimately be a very sharp and persistent recovery. We believe earnings will likely far surpass investor forecasts over the next year due to sharply increasing operating leverage as companies cut costs while massive fiscal stimulus has created personal disposable income growth in 2Q that has never been higher, protecting the consumer's income statement and balance sheet. As the recovery progresses, we see 10 year Treasury yields as a coiled spring, meaning they are likely to be much higher over the next 3-6 months, with big implications for equity leadership.”

Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:

"Continued Upside Revisions! Second quarter earnings season is all but complete with more than 90% of the broad market having already reported. Our tracking of analyst estimates suggests second quarter earnings dropped by 42.6% but, more importantly, bottoms-up estimates for 2021 continue to be revised upward. This continues a string of weekly revisions stretching back to mid-April, resulting in 2021 estimate growth of +26.6% after an expected decline of 19.4% this year. These upward revisions are more broad-based than the markets recent leadership. This situation will need to be corrected at some point down the road but, for now, tech earnings revisions continue to suggest valuations are not as stretched as many seem to believe. These upward revisions, and the evidence that the economy has weathered the well-publicized rollbacks at the state level, have pushed the broad market index to within 50 points of our upgraded year end forecast.”

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