Stocks rose Wednesday, as risk sentiment was fairly strong. Investors are weighing competing forces once again.
All three major U.S. indices rose considerably, with the S&P 500 up 0.78%, a gain that was buoyed by the tech-heavy Nasdaq, up 1.44%. The 10-Year Treasury yield rose a tick to 0.66%. Yields rise when prices fall.
On the negative side, new daily coronavirus cases in the U.S. popped to a record high 60,000, according to Johns Hopkins data. Stocks sold off on a few days in June as this type of development emerged, but have largely shrugged off the apparent second virus wave in July. But states are pausing reopening plans and investors fear another round of lockdowns, potential developments in the back of investors’ minds.
The positive force, however, is that investors are expecting another round of fiscal stimulus, as President Trump has recently said he would support additional cash grants to households. And the House of Representatives has passed the extension of the Paycheck Protection Program, which gives low interest and forgivable loans to small businesses on the condition that businesses retain employees.
Monetary stimulus is flowing through the system and interest rates cannot fall from here, unless the Federal Reserve is to lower rates into negative territory, which it likely will not do. But for households and businesses—should reopenings remain sluggish—many will require a fresh cash injection. That injection worked the first time around, bridging the economy from lockdowns to reopenings.
Cyclical stocks did perform decently Wednesday, with large cap oil, consumer discretionary, industrials and banking all up between flat and 1%. That’s a slightly risk-on signal.
But growth tech stocks, which investors favor in order to avoid potential economic turbulence, led the day, as they have been in many stretches of time of late. The NYSE FANG index, which has a heavy market cap weighting in the S&P 500, rose 2.6%.
Apple (AAPL) - Get Report rose 2.33% to a new all-time-high of $281 as analyst earnings estimates have been revised higher on stay-at-home growth trends like services and 5G device sales, which is expected to see strong demand by the end of the year.
Here’s what Wall Street’s saying:
Seema Shah, Chief Strategist, Principal Global Investors:
"This may be an uncomfortable moment for the U.S. Congress. They clearly need to continue providing fiscal support, but they cannot turn a blind eye to the fact that, long after COVID-19 is contained and defeated, the U.S. taxpayer will still be living with the consequences of this spending blitz. Equities and other risk assets should be supported by expansionary monetary and fiscal policy – a potential Goldilocks moment for investors.”
Mike Loewengart, Head, Investment Strategy, E*Trade:
"The market is continuing to find a tangible direction amid a fair amount of volatility. While the market largely reflects investor optimism, the COVID situation is seemingly evolving by the hour and we’ve also reintroduced trade tensions to the mix so there’s a bunch to digest. While mortgage applications were strong this morning, that’s likely not the full story of the housing market and while that’s an important sector for the health of the economy, it’s one of many signals, several of which are saying different things.”
Jeff Buchbinder, Equity Strategist, LPL Financial.
"The dominance of growth stocks is one of the biggest stories for the market in 2020. Stronger balance sheets, better earnings, and favorable positioning for the work-from-home trend suggest this historic run for growth stocks over the past decade may still have legs."