Stock gains accelerated by midday Friday, as strong sentiment was driven by positive U.S.-China trade relations. The S&P 500 also hit a level it has only hit once post-bear market.
All three major U.S. indices rose, with the S&P 500 up 1.4%, better than the morning’s gain of 1%. The 10 year treasury yield hit 0.67%, above the morning’s level of 0.66%. Investors have been buying stocks tepidly, while also moving into cash in droves, as treasury prices had momentarily tapped out recently.
The S&P 500 hit 2,920, a level just under the 2,939 it hit Thursday April 29. These have been the only two times the market hit this level since its bear market low on March 23. The index has rallied 30% from that point, as investors look through what will be a rough 2020 and into a “normalized” level of expected 2021 earnings.
Thursday, it was U.S.-China trade talks, which reportedly included a phone call that had both sides agree to meet phase 1 trade obligations, that drove traders into stocks.
But Morgan Stanley equity strategists say the 2,900 level is one that will be — and has been — met with technical resistance. This isn’t a surprise, as the index’s average stock now trades at almost 18 times 2021 earnings estimates, appropriate for where interest rates are, but that may assume less risk than may be out there. The pace of the economic recovery, aided by fiscal and monetary stimulus, is yet to be seen and the threat of more virus infections from re-openings is present.
For Thursday’s risk-on action, cyclical stocks led the way. The S&P 500 Equal Weight Consumer Discretionary index rose more than 2.6%. Industrial stocks rose. The Invesco banking ETF (KBWB) rose more than 2%.