Stocks flickered into the red after experiencing morning gains Wednesday. Up moves in big tech kept the market higher.
After seeing gains of 0.6% in the morning, the S&P 500 fell 0.02% by midday, before returning marginally into the green again. The 10 year treasury yield rose to 0.72%, the highest its been in a weeks, a risk-on signal.
But messaging from the market on risk sentiment was mixed. Continued optimism on reopenings of states is supporting sentiment, but some cyclical sectors were underperforming, while others, like banks, were falling. The Invesco Bank ETF (KBWB) - Get Invesco KBW Bank ETF Report was off 1.15%, while JPMorgan (JPM) - Get JP Morgan Chase & Co. Report., Bank of America (BAC) - Get Bank of America Corporation Report and Wells Fargo (WFC) - Get Wells Fargo & Company Report were down 1.4%, 0.75% and 2.5%, respectively.
Facebook (FB) - Get Meta Platforms Inc. Report, Amazon AMZN, Apple (AAPL) - Get Apple Inc. Report, Netflix (NFLX) - Get Netflix Inc. Report, Google (GOOGL) - Get Alphabet Inc. Report and Microsoft (MSFT) - Get Microsoft Corporation Report all rose between 0.75% and 2.8%. These stocks are mostly recession resistant and have strongholds in growth areas like e-commerce, streaming, cloud storage and digital advertising. Investors tend to pile into the when they seek shelter from economic uncertainty.
These stocks account for roughly 20% of the S&P 500’s total market capitalization, so when they rise, they uphold the broader indices. The tech-heavy Nasdaq rose 1%. .
One of the biggest risks to the reopenings is a second wave of infections.
The S&P 500 has had trouble moving past the 2,900 mark — it’s just below that Wednesday — a valuations stretch. Compared with interest rates, the index’s average 2021 earnings multiple of 17 times may be justified, but with the several risks still on the table, investors may soon begin to demand a higher risk premium on stocks. Stocks could have to fall for that to happen.