All three major U.S. indices were up, with the S&P 500 up around 1.5%. The 10 year treasury yield fell to 0.69%. Investors had been selling the bond of late, but many expect it to remain pressured as the Federal Reserve supports low interest rates, a theme that has kept the market at its relatively elevated level. Yields fall as prices rise.
The rally in stocks was broad, across multiple cyclical sectors, with big tech underperforming, contrary to the past month. Investors had been buying up shares up tech giants who can largely allude the recession and maintain strong growth rates with their secular industry trends. But Thursday saw many cyclical value stocks perform.
PayPal missed revenue and earnings estimates, posting revenue growth of 12% to $4.62 billion and earnings per share of 66 cents. But the company said May 1 was its largest day of transactions ever and that “accelerating April business trends [were] driving [a] strong Q2 outlook.” April saw revenue gain 17%.
PayPal doesn’t rely on consumers leaving their homes to make purchases, but it may be impacted by slowing consumer spend as businesses lay employees off, making the trend an encouraging. It’s also an e-commerce play for those looking for secular trends that can somewhat cut through poor economic demand demand during a recession.
The $168 billion PayPal rose 12%.
Crude oil prices rose as much as 10% to over $26 a barrel. Oil has risen 161% since April 21, good news for many oil companies who are kicking around the possibility of bankruptcy. Investors want to see job losses limited in the sector.
Another solid indicator of global economic demand: China’s exports rose 3% year-over-year in April. Importantly, its imports fell year-over-year.
Jobless claims for the past week were 3.2 million, making the total well over 30 million, although this is a data point the market is looking right past, sending valuations to stretched levels.
The market has struggled to gains meaningful traction in the past few weeks, with the S&P 500 struggling to blow past 2,900, which it’s trading just under now.
With interest rates where they are, some say current valuations are reasonable at roughly 17.3 times 2021 expected earnings, but investors may soon want to demand a higher risk premium on stocks, as reinfections are a risk with state reopenings, renewed trade tensions enter the fray and 2021 earnings estaminets could come down if consumer behavior is more skittish than expected coming out of quarantine.
“We’d rather sit on our hands for a while and wait for another fear [burst]” to drive stocks to more attractive valuations, Dan Eye, Head of Asset Allocation and Equity Research at Roof Advisory Group told TheStreet. His firm had been “nibbling” at stocks in the past few weeks, as it was a net buyer of stocks.