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Stocks Surge Wednesday: What Wall Street's Saying

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Stocks exhibited impressive gains Wednesday, in a risk-on rally heavily inclusive of all sectors. Risks to many sectors are abound, but reasons to buy stocks are aplenty.

The S&P 500 rose 1.74% in a move powered by not only the 1.89% up-move in the NYSE FANG Index, but with outperformance from cyclical sectors. The 10-Year Treasury yield rose to 0.79% and is up in less than a week from 0.66%. Yields rise when prices fall. Inflation expectations are edging up and investors have been getting more comfortable with the continuation of the V-shaped economic recovery.

Big tech had a big day even as Congress unveiled its antitrust report of hundreds of pages claiming Apple  (AAPL) - Get Apple Inc. Report, Amazon  (AMZN) - Get, Inc. Report, Facebook  (FB) - Get Meta Platforms Inc. Class A Report and Google  (GOOGL) - Get Alphabet Inc. Class A Report have arguably engaged in monopolistic practices. Some point to Amazon, Google and Apple’s ability to favor their own services and products using their sticky and large search platforms and the app store. Predatory consumer data harvesting is a theme in Facebook and Google scrutiny.

But these stocks rose sharply. Investors are willing to pay current multiples as these companies leverage existing platforms and legacy businesses to scale out new opportunities in secular growth areas like digital advertising, e-commerce, streaming and payments. Earnings are expected to grow at a premium rate for the next few years against earnings for other sectors. Analysts note that Congress will have trouble passing hard laws that will truly restrict business for these companies, as members of the investigating committee are not whole-heartedly in agreement on specifics of policy changes and the pandemic has taken policy priority.

Cyclical stocks exploded and outperformed big tech Wednesday. Some sectors are home to stocks with valuations fair-to-low compared to ultra low interest rates and the economy got a fundamental boost: President Trump said fiscal stimulus is indeed in play for the near-term. Small business and households need fiscal stimulus, as re-openings have massively decelerated in the past few months. Low interest rates are having a waning marginal impact on the economy, though the economy still needs short-term rates pinned near 0%.

After Trump’s comment, large cap consumer discretionary rose more than 2%, with manufacturing up more than 2% and banks, enjoying an aggressively expanding yield curve, up almost 3%.

Also powering cyclicals is the expectation that multiple vaccines that can be distributed aggressively rethought the glove are expected to hit the market soon. Morgan Stanley biotech analysts see the COVID-19 vaccine, jointly produced by Pfizer  (PFE) - Get Pfizer Inc. Report and BioNtech  (BNTX) - Get BioNTech SE Report, as currently having a 65% chance of approval within the next several months. With economic data recently confirming a speedy economic recovery and a vaccines on the way, the fiscal stimulus front is important, but not as crucial as it was a few months ago.

Here’s what Wall Street’s saying:

Ken Berman, Strategist, Gorilla Trades:

"After canceling the stimulus talks until after the elections, and triggering a sharp bearish reversal yesterday afternoon, the President urged Congress to immediately pass separate bills covering airlines, paycheck protection, and the second $1,200 stimulus checks. Risk assets and Treasury yields bounced back hard in the wake of the POTUS’s tweets, but it’s unclear how House Democrats will react to the President’s sudden strategy shift.”

Chris Larkin, Managing Director, Trading and Investment Product, E*Trade:

"This certainly isn’t the first time we’ve seen the market react to Trump tweets, and it probably won’t be the last. The seesaw we’ve seen since yesterday’s plunge is just case and point for the volatility we may encounter as we close in on the election. That said, with President Trump’s call for aid to airlines, an obviously hard-hit area of the market, traders may be eyeing bullish opportunities in cyclical stocks dependent on a quicker economic recovery—if they can stomach the rollercoaster. And with the latest anti-trust developments, traders may want to proceed with caution when it comes to the red-hot tech sector.”

Dan Ives, Tech Analyst, Wedbush Securities:

"With much anticipation for the House Judiciary antitrust report which cited "monopoly power" in its just released findings this will highlight two fundamental issues in the Beltway vs. Big Tech battle. First,the lack of consensus and divergence among both sides of the aisle on the antitrust issues remains a major issue to move things forward in this 16-month investigation into the powerful grips of Apple, Amazon, Facebook, and Google. Second, despite the report/content and framework for recommendations around Big Tech players (e.g. M&A, business practices) without core law changes we believe this antitrust momentum hits a brick wall.”

Tony Dwyer, Chief Market Strategist, Cannacord Genuity:

"We expect further gyrations as the negotiations or lack thereof create increased uncertainty in the days and weeks ahead; we know there is likely to be massive stimulus after the election regardless of which party wins. While we believe the market should remain volatile ahead of the US election, our positive fundamental core thesis driven by excess liquidity and a synchronized global recovery suggests periods of weakness should be used as an opportunity.”

Eric Schiffer, CEO, Patriarch Organization private equity to TheStreet:

"The Fed would prefer to have policy lead at this point [over size of programs]. They're concerned about the funding side. Did they print money [this year]? I would suspect that that’s case. There are a lot of opaque ways in which they can approach this. The Fed could always do aggressive quantitative easing — there are other things it can do beyond just interst rates. The interest rates story is pretty much over. Now it’s a question of policy and whether the Fed is willing to be more aggressive and I don’t think it is. There are limitations to what the Fed can do.” 

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