Stocks surged Tuesday, as hopes that a coronavirus vaccine will soon hit the market got a fresh injection of optimism.
All three major U.S. indices rose, with the S&P 500 up as much as 2.1%. The safe 10 Year bond saw its yield rise to 0.7%. Yields rise when prices fall.
Novavax (NVAX) said it is ready for human testing of its coronavirus vaccine. Results are expected in July. The stock rose as much as 15%. This is not only a positive on its own, but it furthers the market's thesis that a high number of biotech companies working to create a vaccine means there is a greater chance one will soon be a winner. Recently, Moderna (MRNA) has shown strides in making a vaccine. Shares of Moderna fell 7% Tuesday.
Consumer discretionary were clear winners, with the S&P 500 equal-weight consumer discretionary index up as much as 2.3%. All 50 states have some plan to reopen their states. That, combined with hopes that a vaccine could bring those reopening plans to full, unrestricted re-openings, is underpinning the prevailing optimism in stocks, especially consumer stocks.
The monetary and fiscal stimulus has also so far provided a bridge connecting the current consumer environment, which encapsulates a soaring unemployment rate, to what could be a strong and normal consumer post-virus. The quantitative easing program begun by the Federal Reserve in March this year is “creating unprecedented growth in the money supply,” wrote Mike Wilson, chief U.S. equity strategist at Morgan Stanley in a note.
Wilson says M2, a measure of the measure supply that includes cash, checking and cash-like assets held in mutual funds, has grown 22% since the start of quantitative easing, in which the Fed buys treasury securities, injecting cash into the banking system. In the same period from the start of quantitative easing in 2008, the money supply only grew 5%. This indicates consumers, already enjoying stimulus checks from the government, are seeing a tailwind of liquidity, supporting a quick economic recovery.
Unsurprisingly, crude oil rose 3.6% and is approaching $35 a barrel. The Energy Select SPDR ETF (XLE) rose 3.3%.
The move up in stocks brings the S&P 500 to just over 3,000, for a 34% bounce since the March 23 bear market low. The index’s current level is both past Wilson’s key technical level of 2,900 and just 11% below the all-time high.