Stocks Rise as Money Pours Into Tech: What Wall Street's Saying

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Stocks rose Wednesday, but without a huge rally in tech stocks, the stock market would have looked much less rosy than it did on the surface. 

The S&P 500 rose 1.02%, brought higher by the components on the tech-heavy Nasdaq, which rose 1.73%. The 10-Year Treasury yield is beginning to move in the direction of offering a positive real yield (a yield higher than inflation), rising to 0.7%. Yields rise when prices fall. Investors expect interest rates to remain pressured, especially as the Federal Reserve potentially expands its monetary programs in the event of a spike in yields. 

Cyclical stocks were mostly losers, with the gainers mostly laggards to tech stocks. Large cap oil and banks fell more than 1.5%, even as the yield curve expanded, which increases bank profitability. Consumer discretionary fell a few tenths of a percentage point, while industrials and materials rose by a similar amount. Cyclicals got a jolt from a stellar second quarter earnings season, which clearly points to an economy on track to recover by some point in 2021 — if the recovery maintains its pace. 

Interest rates can’t fall much from here and without more fiscal stimulus, businesses and households in states that aren’t close to fully opened will continue to see liquidity suffer. Full employment may have to wait a long time. Congress is on break for the summer and a new fiscal bill won’t be signed until at least September and the clock is ticking for those parties in need of cash flow. 

Tech stocks have a heavy market cap weighting in the S&P 500 and with their performances Wednesday, the major indices looked solid to the naked eye. Apple  (AAPL) - Get Report, worth more than $2 trillion, rose 1.36%. Tesla  (TSLA) - Get Report rose 6.4%. Both companies are soon to execute stock splits — 4-for-1 and 5-for-1, respectively — which means they’ll give investors new shares at a proportionately lower price per share. That’s so that retail investors can buy these stocks affordably and one stock broker tells TheStreet traders are buying these stocks in anticipation of retail money flowing into them. FAANG stocks more broadly rose more than 3%. 

But it wasn’t just FAANG. The now $245 billion by market cap Salesforce  (CRM) - Get Report rose about 25% to $270 a share after posting revenue of over $5 billion on its earnings report, against estimates of $4.9 billion. Strong operating leverage enabled and adjusted earnings per share beat by over 100%. Raised guidance for the full year gave investors even more confidence. Analysts are raising their price targets and mentioning the pandemic may have a hand in accelerating demand for these enterprise software services. Cloud giant Microsoft  (MSFT) - Get Report rose 2%. Investors are continuing to favor growth tech over cyclical value in times of economic uncertainty. 

Here’s what Wall Street’s saying: 

Ken Berman, Strategist, Gorilla Trades:

"The rising trend in long-dated Treasury yields continued in early trading, indicating bullish pressures across asset classes. So while investors might take a step back ahead of tomorrow's key Fed event, the rally could soon continue in earnest, boosted by the improving U.S. COVID numbers.” 

Brian Rose, Senior Economist, Americas, UBS:

"Historically, hyperinflation has always been the result of printing too much money. The most recent example is Venezuela, where we forecast inflation to be around 270,000% this year. However, it is important to keep in mind that printing money does not make inflation inevitable. To give one example, Japanese government debt exceeds 200% of GDP, the Bank of Japan has printed more than 100% of GDP, yet inflation remains near zero. Overall, economic activity is far below normal and unemployment is extremely high. Under these circumstances, supply-side disruptions notwithstanding, there is little reason to worry about a rapid rise in inflation. Minutes from the most recent FOMC meeting showed participants noting that "a highly accommodative stance of monetary policy would likely be needed for some time to support aggregate demand and achieve 2 percent inflation over the longer run." The Summary of Economic Projections from the June meeting indicates that the Fed doesn’t expect inflation to get up to their 2% target by the end of 2022 even if they leave rates at zero in the interim. Of course, we can't rule out the possibility that inflation will rise in the future. At some point, economic conditions will return to normal.” 

Tim Anderson, Managing Director, TJM Brokerage to TheStreet:

“You get tons of traders front running [the stock splits in Apple and Tesla].” 

Dan Ives, Tech Analyst, Wedbush Securities to TheStreet:

"Salesforce is probably the best barometer for cloud spending out there. The Street [Wall Street] is reading through that, for software, the party continues.” 

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