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Markets Are Risk-On as Reopenings Continue and Oil Soars

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Stocks rose Tuesday as state reopenings showed solid momentum and oil rose significantly. 

All three major U.S. indices rose, with the S&P 500 up as much as 1.4%. The 10 year treasury yield rose to 0.67%. The treasury is issuing $3 billion of new debt to fund stimulus, but that added supply is only about 0.1% of the entire treasury bond market, leaving a chunk of the selling to be attributable risk-on market sentiment. Gold, another safe haven fell 0.27%. Oil rose 18%. 

Several states are reopening their economies, including Florida earlier this week. California said it will reopen Friday. The market had already rallied on the reopening front, but the continued momentum in large states isn’t hurting Tuesday. 

"California announcing it will start to ease its lockdown by Friday has been a catalyst for a turnaround,” wrote Jasper Lawler, Head of Research at London Capital Group in emailed remarks to reporters. "Investors have been waiting for the US to follow the same path as Europe in reopening its economy. It’s another sign the worst of the pandemic is behind us.”

Oil is trading at $24 a barrel now and has been on a tear, rising 91% since April 28, not a surprise if the market assumes more driving and economic activity. As oil rises, some oil producers may hoping to avoid bankruptcy, an important piece to the U.S. economy, which has become a larger net exporter of oil in recent years and represents a solid chunk of employment. 

Outperforming the market Tuesday were Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report, Chevron  (CVX) - Get Chevron Corporation Report and BP Oil, up 3.6%, 3.2% and 5.5%, respectively. 

The consumer, which comprises the majority of U.S. economic output may also be faring better than feared. Shake Shack  (SHAK) - Get Shake Shack Inc. Class A Report said on its earnings release Monday that it is seeing positive sales momentum in the past few weeks, driven by digital sales, a trend recently seen in the restaurant space, one that some strategist do point out could be attributable to the fiscal stimulus aiding consumers. Shake Shack shares fell 1.5% after rising in premarket trading. 

Starbucks  (SBUX) - Get Starbucks Corporation Report shares rose 4% after the company said it is reopening most stores with safety restrictions. 

Revenue momentum in companies that bare some indication on the consumer has been a theme on earnings, with Facebook  (FB) - Get Meta Platforms Inc. Report saying it has been enjoying advertising spend momentum in the past few weeks. 

Recently, consumer confidence has shown a reading of 70 in April, well below the 89 seen in March, but also well above financial crisis lows of just above 50. 

The market positivity comes at a time when Wall Street is warning of several risks. Stock valuations have soared as 2020 earnings estimates have fallen. Meanwhile, easing lockdowns could potentially cause a re-acceleration of the spread of infections and, regardless, companies across sectors have said they have almost no visibility into when consumer behavior will return to normal. 

If economic data doesn’t show momentum back towards positive growth by summertime, strategists at Stifel wrote in a recent note, stocks could fall hard. 

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