Stocks rose Monday, led by a move into tech stocks, a dynamic often arising when investors are concerned about the economic outlook. Wall Street is highlighting the tepid nature of the up-move in stocks in the past month or so.
All three major U.S. indices rose Monday, with the tech-heavy Nasdaq, which has several components comprising a large slice of the S&P 500’s market cap, up more than 1%. The S&P 500 rose 0.65%. The 10-Year Treasury yield, after falling to 0.68%, a risk-off signal, ended the day flat at 0.7%. Yields fall when prices rise.
The 10-Year Treasury yield is down 21 basis points since early June, just before the slight resurgence in virus cases and right after extreme bullishness on the back of an impressive beat on economic data.
On Monday, the 5-day moving average of new coronavirus cases hit 25,000, down from 32,000 over the weekend, but up from 17,000 almost a month ago. That’s according to Johns Hopkins data. While economically-sensitive and lockdown-sensitive stocks haven’t performed very well of late, more harsh selling may have to wait until lockdowns become a theme again.
Powering the market Monday were stay-at-home and work-from-home innovators. Netflix (NFLX) - Get Report, Amazon (AMZN) - Get Report, Microsoft (MSFT) - Get Report, Nvidia (NVDA) - Get Report and Apple (AAPL) - Get Report rose between 1.4% and 3%. Apple saw a price target raise to $400 from $335 at Cowen, which sees multiple expansion from 5G unit sales and services in out-years of the valuation. The stock currently trades at $358.
Investors are looking for growth that can power through cyclical and health-related headwinds for the moment, as cyclical stocks have had a run of late, although reached pre-virus levels.
Consumer discretionary, oil and banks were closer to flat Monday.
Valuations compared to interest rates are stretched relative to historical standards. Tepid trading has been a theme in the past few weeks.
Here’s what Wall Street’s saying:
Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:
“We hear more investors willing to embrace a recovery, but with caution. Most expect a return to a low-growth, low-rate world. We lean toward higher growth and rates with new market leadership and an asymmetric risk-reward. Fiscal [policy/stimulus] disappointment is the big risk. COVID-19 fears are still present in every conversation but have not been nearly as prominent, as the focus has shifted to the speed of reopening, the durability of demand inflections currently underway, the pace at which jobs return, and the U.S. election. Most still seem to expect a slower recovery and, ultimately, a return to a low-growth, low-rate world, where the market will pay a high premium for for growth assets. Cyclicals seen as little more than a trade. We think this creates an asymmetric skew that favors a higher rates, pro-cyclical trading is particularly bad for defensive/yield equities."
Jason Pride, Chief Investment Officer, Private Wealth, Glenmede:
“As equity markets continue to grind higher, so too have valuations. U.S.large-cap stocks currently sit near the 81st percentile of longer-term fair value.In contrast, U.S.small-caps still ls it near the 22nd percentile, below fair value. This portion of the market has been hit particularly hard on the downside and may stand the most to gain in the ongoing rebound.” Pride added that a second round of lockdowns has replaced new virus cases as the big market fear.
JJ Kinahan, Chief Market Strategist, TD Ameritrade to TheStreet:
"At the end of the day, earnings drive markets. We aren’t getting the earnings reports we are used to. You’re not getting guidance. Until you have some true earnings that you can actually make some more projections, we are going to operate in a market where any piece of news can send S&P 500 futures up and down in a mater of seconds.”