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Stocks Are Pushing Through Headwinds Tuesday

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Stocks rose Tuesday, even though several developments are intrinsically unhelpful to stock prices. 

The S&P 500 rose 0.91%, aided by the components of the tech-heavy Nasdaq, which rose 1.4%. The 10-Year Treasury yield was flat at 0.68%. Yields and prices move inversely to each other. 

The rally was lead by tech and, specifically, the more than $2.6 trillion by market cap Apple  (AAPL)  rose 1.94% to $117 a share. Apple is announcing new watches and iPads Tuesday, which could be key as wearables represents one of the company’s fastest-growing revenue segments. 

But a key headwind for economically-sensitive stocks emerged. The IEA dropped its oil demand forecast for 2020 to 92 million barrels per day and also issued a lowered 2021 forecast, citing a slow economic recovery.

For 2020, the organization only lower its demand forecast by a bit less than 1 million barrels per day. Still, the forecast challenges the narrative that the currently fast pace of the recovery will continue, though crude oil prices rose 0.9% to $37.60 a barrel. The Energy Select SPDR ETF  (XLE)  rose 1.45%. 

Recent economic data, while painting a mixed picture of the speed of the economic recovery, haven’t been enough to dissuade investors from the broader narrative of the V-shaped recovery and the IEA is making a small adjustment, although its words are damning. 

Other cyclical stocks also rose, with many large cap consumer discretionary and manufacturing stocks up almost 1%. Banks were down, as the yield curve barely budged. Before the opening bell, banks were up and long-term interest rates were as well. 

The Federal Reserve will kick off two days of meetings, but cannot introduce new policy to further stimulate the economy. The central bank can, though, shed light on details of its continued stimulus and its new long-term policy, which is to let inflation run a bit over 2% in the future before lifting interest rates. 

"We expect changes in the post-meeting statement in reference to the current state of the economy and the new emphasis given to employment over inflation in the policy directive,” said Steven Ricchiuto, Chief U.S. Economist at Mizuho Securities. "None of this should be new to the market but is likely to drive the headlines following the statements releases.”

Long-term interest rates have been unable to rise significantly from current levels because of the Fed’s promise to keep rates low for a long time, a dynamic that is highly supportive of stocks, though many say U.S. stocks are beginning to look richly valued. 

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