Stocks spiked Friday as investors showed their enthusiasm for President Trump’s plan to reopen the economy, a dynamic consistent with the market’s tone of late. cyclical stocks outperformed, while safer assets fell in price, counter to the last few weeks.
All there major U.S. indices rose, with the S&P 500 up 2.3%, bringing the index’s weekly gain to 2.4%. The 10 year treasury yield rose (yields fall when prices rise) to 0.63% from 0.61%, a bullish signal. The yield was at 0.76% Monday, so Friday’s risk-on move out of the bond signifies the nervous backdrop to the market may be fading.
The Federal Reserve had already been pumping billions of dollars per day of liquidity into the banking system, so the market has digested this for some time, making the recently pronounced move into safety troublesome to some on Wall Street.
Gold prices, which have risen this week, fell 0.8% Friday.
President Trump outlined a 3-step plan to reopen parts of the U.S. economy currently on lockdown as the Coronavirus spread curve begins to flatten in areas such as New York. Some governors, who have most of the decision making authority, are taking to Trump’s plan to gradual move back towards normalcy.
Investors have been looking past the virus and the recession, as the light at the end of the tunnel seems to be brightening, a dynamic that has sent valuations towards toward 19 times 2020 earnings projections, which many on Wall Street find to be overstretched for the time being. The multiple hit below 15 at the low of the 2020 bear market. Many say analysts estimates need to come down from here.
"The dynamic is still bullish in markets because bad news is being cast away as priced in and good news is justification for further recovery,” wrote Jasper Lawler, head of research at London Capital Group, in emailed remarks to reporters.
And the rally in stocks was lead by cyclical names in consumer discretionary and banking among other sectors, contrary to recent trends. Nike (NIKE) and Lulu Lemon (LULU) - Get Report rose 3.3% and 2.6%, respectively. JPMorgan (JPM) - Get Report and Bank of America (BAC) - Get Report both of which just reported earnings showing large amounts of cash set aside for loan losses, rose 4.9% and 3.8%.