Why Stocks Are Rebounding Wednesday

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Stocks rebounded Wednesday, as investors bought dips in tech stocks. Positive guideposts on the consumer emerged, but a political headwind stood in the way of strong gains in cyclical sectors. 

The S&P 500 rose 1.2%, aided by the components of the tech heavy Nasdaq, up 1.8%. The 10-Year Treasury yield rose slightly to 0.68%. Yields rise when prices fall. 

Beaten down stocks like Apple  (AAPL) - Get Report and Tesla  (TSLA) - Get Report rose 3% and 9%. Both stocks had entered corrections territory, along with several other growth tech stocks that can power through economic headwinds, but investors may be in the process of re-rating the valuations of growth tech stocks. Demand for at-home services and other secular growth trends may have been pulled forward into earlier years in the valuation as the pandemic accelerated demand for and adoption of those services. Slack  (WORK) - Get Report shares fell 15% after the company beat earnings estimates and raised guidance, but reported decelerating growth in several areas including billings. Competition from Microsoft’s  (MSFT) - Get Report Microsoft Teams is a part of the concern for Slack. 

But for the most economically-sensitive and value oriented areas of the market, stocks were rising in premarket trading, even with one new negative development. The current fiscal stimulus bill is about $500 billion, lower than previous bills this year in the trillions. Unemployment benefits are currently only set to be $300 per week, lower than the $600 earlier in the year. No stimulus checks are in the current bill. These parts of the stimulus have aided the consumers' ability to spend in the past several months. 

Some do note that not only has the unemployment rate fallen to 8.4% from over 15% in just a few months, but the adoption of digital consumption is driving sales while the country is not fully reopened. 

Lululemon Athletica  (LULU) - Get Report grew revenue 2% year-over-year to just above $900 million in its reported quarter published Tuesday afternoon. Its digital sales rose 157%. The stock fell even as management guided to more revenue growth later in the year, as the stock’s multiple has expanded aggressively this year. 

Restaurant analysts at Cowen say that food joints like McDonalds  (MCD) - Get Report and Burger King owner Restaurant Brands International  (QSR) - Get Report are starting to trend at same-store-sales growth rates of around 3% year-over-year. 

Consumer discretionary stocks were up a few tenths of a percentage point in premarket trading, before many of them dipped into the red after the open. Large cap oil stocks rose about 0.5%. Bank stocks were up just under 1%, before falling by a similar amount. Industrials and materials rose. This all comes after the Vanguard S&P 500 Value ETF  (VOOV) - Get Report fell about 4.3% between the end of last Wednesday and the start of trading this Wednesday, pressuring valuations, as investors now grapple with strength in backward looking data against questionable stimulus bill. 

Meanwhile, investors took a defensive posture Wednesday, sending shares of large cap consumer staples up a bit less than 1%. 

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