Tech, Earnings Jolt Market: What Wall Street’s Saying

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Stocks rose Monday, with risk-on sentiment found mostly in tech, while other sectors were mixed. 

The S&P 500 rose 0.7%, powered by the tech-heavy Nasdaq’s gains of 1.6%. The 10-Year Treasury yield rose to 0.60%. Yields rise when prices fall. 

The NYSE FANG Index rose 2%, powered by Apple  (APPL) , Amazon  (AMZN) - Get Report, Facebook  (FB) - Get Report and Google  (GOOGL) - Get Report, all of which report earnings this week. These stocks have surged since June, with valuations expanding aggressively, even as near-term earnings are pressured.

The virus is driving accelerated top-line growth rates in areas already enjoying high growth rates, while elevated costs pressure earnings. As well, some businesses' ad spend remains impacted by the economic downturn. Still, investors are plowing into these names, which have strong long-term prospects. 

That comes as cyclical sectors are pressured, trading at inexpensive valuations, though these stocks are holding up nicely of late as earnings roll in. The price differential, or gap, between growth and value stocks is higher than it was in 2000, before the tech bubble, according to data from LPL Financial.

With rising virus cases, paused state reopenings and interest rates near rock bottom, the market needs to see more fiscal stimulus. Congress seems close to a $1 trillion stimulus bill, but has been slow to pass it and investors are hoping unemployment benefits won’t underwhelm. 

While bank stocks fell Monday, consumer discretionary, industrials and materials all rose slightly. As 25% of S&P 500 companies have already reported second quarter earnings, 79% have beaten estimates, according to data from Glenmede, with notable strength seen in industrials and materials. Earnings have fallen 43% year-over-year, compared to prior estimates from analysts of 45%. The market needs to see that Q2 will truly mark the trough in earnings declines for 2020 in order to have confidence in a V-shaped economic recovery. 

Here’s what Wall Street’s saying: 

Jason Pride, Chief Investment Officer, Private Wealth, Glenmede:

“As markets continue to approach their all-time-highs from the depths of the COVID-19 bear market, many investors are having a hard time rationalizing the case of further gains."

Mike Wilson, Chief U.S. Equity Strategist, Morgan Stanley:

“Despite new ind recovery highs in the past few weeks the average stock remains in “correction.” So, while the mainstream media have by surprised by the market’s apparent indifference to these risks, the action under the surface was telling a much different story.” 

Ryan Detrick, Chief Investment Strategist, LPL Financial: 

“There is growing talk that growth stocks and specifically technology stocks are in a bubble. Yes, there are a few of the large technology and communications stocks dominating the gains, but those companies are also dominating earnings growth, as the COVID-19 pandemic has only intensified their overall leadership.” 

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