U.S. stocks surged on Tuesday, as the market grew more positive on a second half 2020 economic recovery from the doldrums it’s in now, and oil rebounded partially from an ugly Monday.
Two things to keep an eye on: bank stocks and the global economy.
Let’s go over the facts first.
All three major U.S. indexes rose more than 4% Tuesday. The S&P 500 rise 4.94%. The 10 year treasury yield rose to almost 0.8%, after hitting an all-time low of 0.4%.
In the morning, President Trump said he’s considering a “major” fiscal stimulus package for the U.S., a plan that would include a cut to payroll taxes.
That can’t help consumers and businesses that are inactive while the coronavirus rages, but it can pad a potential second half 2020 economic recovery. And for businesses paying the payroll tax, it would support profit margins, as many businesses, like Starbucks (SBUX) - Get Report are still paying wages and salaries while sales plummet for the quarter.
Some are worried the Democrats in Congress won’t want the stimulus plan to pass, although there are still a lot of Republicans in the Senate.
The market — weak on sentiment of late — was able to push past a midday hiccup, when the U.S. Surgeon General said the virus will get worse before improving.
One thing to watch is the incredibly battery bank stocks.
First off, the yield curve hasn’t been inverted of late, with the 3 month treasury yield now at 0.45%. But longer-dated yields have moved up in the past day. Secondly, oil prices, after a 25% decline Monday, rose 11% Tuesday with the risk-on sentiment.
And JPMorgan and Citigroup benefit significantly from higher oil demand. Bank analysts at Goldman Sachs say Citi and JPMorgan get 3.2% and 2.1% of their total loan revenue from oil and gas companies, respectively. That’s more than any other large cap bank stock in the U.S. An expanding yield curve and better oil demand into the second half of the year should see forward revenue and earnings estimates for these two banks stocks going forward.
Still, while Tuesday was a classic risk-on day for the markets, one firm has grown cautious in a general sense.
Unigestion asset management, with $23 billion under management, sees global GDP growth for the net few months coming in at 0%. A recession is defined as two consecutive quarters of negative growth. Unigestion sees inflation globally coming in at below 0%, hence the drive of money into bonds and out of stocks of late.
The world is nowhere near out of the woods on the economic impact of the coronavirus, although the market felt a bit better Tuesday.
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