Stocks rose in a market featuring a rather defensive investors position Monday. Investors still have nagging concerns over the speed of the economic recovery.
The S&P 500 rose 1.64%, powered by the large cap tech components of the Nasdaq, which rose 2.56%. The 10-Year Treasury yield, which has been stuck at its current level for days, was flat at 0.78%. Yields fall when prices rise. The price of crude oil fell 2.66% to just below $40 a barrel.
Investors were plowing into the mega cash flow generative growth tech names, which are less impacted, positively or negatively, by changes in the economic outlook. Apple (AAPL) rose 6.35% to $124 a share. Its iPhone 12 launch is expected to feature 5G capabilities and garner strong consumer demand.
House Speaker Nancy Pelosi and some Senate Republicans reportedly rejected the White House fiscal stimulus proposal, which called for $1.8 trillion and may have included checks to households and cash to small businesses. Many believe fiscal stimulus is a key ingredient to the V-shaped economic and earnings recovery, which wold support stocks at current prices. Small businesses are largely not fully reopened and need cash to retain employees. Many unemployed Americans also need cash in order to keep spending.
Cyclical sector like consumer discretionary and manufacturing rose a few tenths of a percentage point. Oil stocks fell a bit, while bank stocks rallied into what could be a strong earnings season particularly for banks with businesses tilted away from the direction of interest rates. Investment banks, which can see revenue and earnings through on the back of fee-based revenue streams like trading and deal-making, were up more than 3% Monday.
Meanwhile, the defensive large cap consumer staples sector rose 1%. Utilities stocks rose more than 6%.
Overall, investors are confident that, even with small businesses suffering with no fiscal stimulus, employment and consumer spend can largely recovery quickly as a Blue Wave in Congress and the White House could yield heavy fiscal spending for the first term. Plus, multiple vaccines could be widely distributed by large players with global scale within the next few months.
Here’s what Wall Street’s saying:
Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:
"Cyclicals have garnered more attention despite fiscal concerns. Amid growing speculation of a potential Democratic sweep and possibly greater fiscal stimulus than under other outcomes, cyclicals are gaining interest. At this point, clients are focused on whether a size-able fiscal deal is now necessary for cyclicals to continue working and/or whether it matters if that deal potentially comes pre-election (still unlikely according to our policy strategy team) or after. Our economists believe there is enough momentum in the recovery to keep the US economy on pace to return to pre-Covid (4Q19) levels of real GDP by the middle of next year.For all of 2021, they see real GDP growing 5.5% on a year-over-year basis. This new forecast incorporates the view that a fiscal deal does not get passed until next year and is limited to just $1T. Bottom line, a near term fiscal deal would be nice insurance but not necessary for economic recovery to continue.”
Team, Chief Investment Office, Franklin Templeton Investments:
“If the Democrats gained much stronger control over government, fiscal stimulus would also likely be much larger and serve as an economic tailwind, although a larger fiscal deficit might have some implications longer term with regard to higher taxes for future generations."
Michael Sheldon, Chief Investment Officer, RDM Financial Group:
“We have only recovered 52% of the jobs lost during the downturn so far and there are signs that the rate of job growth is slowing. In terms of the recovery, the easy part of the rebound (meaning large increases in month over month economic data) may be behind us for now. Looking ahead, corporate profits are currently forecast to rise 26% in 2021 compared with a decline of 18% in 2020. We remain overweight growth versus value, large cap versus small cap and the U.S. versus foreign markets."
Jason Pride, Chief Investment Officer, Private Wealth, Glenmede:
"Another round of fiscal stimulus aimed at the consumer and struggling industries could help sustain economic momentum. While earnings may be starting to recover, a full and broad recovery may be dependent on a widely available vaccine.”
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