Why Stocks Are Rising as Economic Recovery Is in Question

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Stocks rose Thursday even as jobless claims disappointed, one indication supporting the argument that the economic recovery is slowing down.

The S&P 500 rose 0.6%, with the tech-heavy Nasdaq up 0.8%. The 10-Year Treasury yield, which has had a solid run the past week on the back of strengthening inflation expectations, fell a tick to 0.77%. Yields fall when prices rise.

Large cap growth tech stocks, which have premium earnings growth for the near-term, are experiencing momentum, as investors are comfortable again paying the current multiples. Apple  (AAPL) - Get Report rose as much as 1% in premarket trading before tapering off to a 0.5% gain. Apple has an iPhone 12 catalyst and earnings upcoming that investors are prepping for.

The rally Thursday was broad, with most sectors, especially economically sensitive ones up a few tenths of a percentage point, although most of these sectors were underperforming growth tech.

This comes as jobless claims for the past week came in at 840,000, not much better than last week’s 849,000. Economists expected Thursday’s reading to be 820,000. As virus cases generally tick up in the fall, New York City begins closing down and fiscal stimulus hasn’t yet been deployed, many afraid that the V-shaped economic recovery is threatened. Stocks, though, are trading at tolerable valuations compared to interest rates and many are confident that an interruption to the speedy recovery would be short-lived, especially as coronavirus vaccines are close to ready.

"The principal consideration sustaining the equity and credit markets is the underlying health of the recovery,” wrote Steven Ricchiuto, Chief U.S. Economist at Mizuho Securities. "As identified clearly in the minutes of the September FOMC meeting, the economy has recovered more quickly than was generally expected in the late-spring and early-summer.” 

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