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Why Stocks Were all Over the Place Thursday

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Market leadership and messaging flip-flopped all day -- and by large magnitudes. Traders TheStreet spoke with posed a few reasons as to why that happened. 

The S&P 500 dropped 0.7% in the morning, before rebounding to a largely flat move by the afternoon (up 0.2% at 2 p.m. EDT.). There was a moment during the premarket in which cyclical stocks were down substantially. Oil and bank stocks were down 4% and large-cap consumer discretionary was down more than 3%, all signifying risk-off sentiment. And it wasn’t as if investors were piling into growth tech stocks to avoid the economic turbulence potentially seen in new economic data out Thursday. The S&P 500 Technology etf XLK was down 0.3% in the early going. 

Jobless claims for the past week were nearly 1.5 million, worse than economists’ expectations of 1.35 million, marking the second straight week that jobless claims showed a pause in the previously positive trend. Jobless claims had been getting smaller for over a month, until the last two reports. Meanwhile, the economic data will be troubled if the lockdowns are again reinstated, as Johns Hopkins data show new daily virus cases to be trending at a 5-day moving average above 30,000 this week, up from 17,000 almost a month ago. Thursday, daily cases hit 45,000, a record high. The 10-Year Treasury yield fell hard to 0.66% in the morning, adding to the risk-off signals. 

But then oil and bank stocks shot up more than 1%, with oil reaching close to 2% at one point. And technology didn’t stall. The  (XLK) - Get Technology Select Sector SPDR Fund Report rose 0.5% at one point, which brings the S&P 500 significantly because tech stocks have an outsized weighting in the S&P 500. 

At first, these gyrations raise questions about technical happenings in the market, which could easily be at play. But traders pose that the market has a tendency to exhibit these swings, which make it appear as if investors are unable to make up their minds about the direction of the economy and interest rates, at this time of year and when there is massive uncertainty. 

Before we get into those dynamics, let’s take as step back for a moment. 

U.S. stocks are still largely down considerably for the year. The sectors that have performed the best have been in technology (internet, cloud and software, 5G-exposed businesses). The Vanguard S&P 500 Growth etf  (VOOG) - Get Vanguard S&P 500 Growth ETF Report is up almost 6% year-to-date, while the etf’s value counterpart  (VOOV) - Get Vanguard S&P 500 Value ETF Report is down 18% on the year, although it’s up 30% since the bear market low in late March. Investors have grown bullish on a fast economic recovery, aided by fiscal and monetary stimulus, but have hedged their bets by holding onto the many growth stocks that can grow through economic headwinds. 

For the near-term, it’s highly uncertain whether value will resume rebounding or if growth will continue to overpower the bulls on a V-shaped recovery. 

"Traders are having trouble weighing growth versus value right now, stay at home versus re-opening,” Sarge Guilfoyle, contributor to TheStreet’s Sister publication RealMoney and former floor trader, told TheStreet. Work-from-home stocks are seeing a tailwind as businesses spend more on cloud services, a potentially long-term tailwind to the likes of Microsoft  (MSFT) - Get Microsoft Corporation Report and data center chip supplier Nvidia  (NVDA) - Get NVIDIA Corporation Report. Stay-at-home stocks are ones such as Amazon  (AMZN) - Get Inc. Report or Netflix  (NFLX) - Get Netflix Inc. Report and many more. Reopening stocks such as restaurants and airlines have struggled to come close to pre-virus levels. And with the virus seemingly back in play, the trajectory investors were responding positively to for over a month is in question. And neither economic statistics nor financial statistics can tell the future as much as they usually do. 

Another dynamic at play in markets Thursday: portfolio rebalancing. 

"Investors are paying a lot of attention to what their portfolios will look like for the second half of the year and energy and financials could be two areas,” Tim Anderson, Managing Director at a division of TJM Brokerage, told TheStreet. Investors are buying “what they think is going to outperform in the second half of the year.” Anderson added that “people [fund managers] are saying 'I’m 3 days from having my performance numbers done for the first half of the year.' They don’t want to be making big portfolio moves in late July for the second half of the year.” 

For the long-term, popular opinion in the market is in favor of large-cap growth stocks (smaller unprofitable ones have a lot to prove), while contrarians say value will soon have its day in the sun, especially as a surplus of liquidity in the economy is waiting to be spent when or if a vaccine arrives. 

For the short-term, the outlook for growth is a little shakier. 

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